BBA SEM - III BS (BBA 305) Instructor: Dr.

Sheetal Patel

CHAPTER: 2
MEASURE OF CENTRAL TENDENCY AND
MEASURE OF DISPERSION (VARIATION)

Formulas:
Measure of Central Tendency
1. MEAN (ARITHMETIC MEAN):
 Only Observation

∑𝑥𝑖 ∑𝑑𝑖
X̄ = OR X̄ = A +
𝑛 𝑛

 Ungroup frequency distribution

∑𝑓𝑖𝑥𝑖 ∑𝑓𝑖𝑑𝑖
X̄ = OR X̄ = A +
𝑛 𝑛

 Group frequency distribution

∑𝑓𝑖𝑥𝑖 ∑𝑓𝑖𝑑𝑖
X̄ = OR X̄ = A + ×C
𝑛 𝑛

2. MEDIAN:
 Only Observation and Ungroup frequency distribution

𝑛+1 th
M=( ) Obs.
2

 Group Frequency Distribution

𝑛
𝑛 2
− 𝑐𝑓𝑖
Median Class = ( )th Obs. M=L+ ×C
2 𝑓𝑖

3. QUARTILES [1 TO 3]:

 Only Observation and Ungroup frequency distribution

𝑛+1 th
Q1 = ( ) Obs.
4

𝑛+1 th
Q3 = 3( ) Obs.
4

12
BBA SEM - III BS (BBA 305) Instructor: Dr. Sheetal Patel

 Group Frequency Distribution

𝑛
𝑛 4
− 𝑐𝑓𝑖
Q1 Class = ( )th Obs. Q1 = L + ×C
4 𝑓𝑖
3𝑛
𝑛 − 𝑐𝑓𝑖
4
Q3 Class = 3( )th Obs. Q3 = L + ×C
4 𝑓𝑖

4. DECILES [1 TO 9]:

 Only Observation and Ungroup frequency distribution

𝑛+1 th
DK = K( ) Obs.
10

 Group Frequency Distribution

𝐾𝑛
𝑛 − 𝑐𝑓𝑖
10
DK Class = K( )th Obs. D K= L + ×C
10 𝑓𝑖

5. PERCENTILES [1 TO 99]:

 Only Observation and Ungroup frequency distribution

𝑛+1 th
PK = K( ) Obs.
100

 Group Frequency Distribution

𝐾𝑛
𝑛 − 𝑐𝑓𝑖
100
PK Class = K( )th Obs. PK = L + ×C
100 𝑓𝑖

6. MODE:

 Mode is defined:

Modal Class = The class with highest frequency

𝑓1−𝑓0
Z=L+ ×C
2𝑓1−𝑓0−𝑓2

 Mode is not defined:

Z = 3M - 2X̄

13
BBA SEM - III BS (BBA 305) Instructor: Dr. Sheetal Patel

Measure of Dispersion (Variation)

1. RANGE:
𝑋𝐻−𝑋𝐿 𝑅
R = XH - XL Co-efficient of Range = =
𝑋𝐻+𝑋𝐿 𝑋𝐻+𝑋𝐿

2. QUARTILE DEVIATION:
𝑄3−𝑄1 𝑄3−𝑄1/2 𝑄3−𝑄1
Qd = Co-efficient of Qd = =
2 𝑄3+𝑄1 /2 𝑄3+𝑄1

3. MEAN DEVIATION:

 Only Observation

∑ | 𝑥𝑖− x̄ |
δ X̄ =
𝑛

 Ungroup Frequency Distribution and Group Frequency Distribution:

∑ 𝑓𝑖 | 𝑥𝑖− x̄ |
δ X̄ = Co-efficient of Mean Deviation = δ X̄ / X̄
𝑛

4. STANDARD DEVIATION (S OR 𝝈):

 Only Observation

∑𝑥𝑖² ∑𝑥𝑖² ∑𝑥𝑖

S=√ − (X̄)² OR S=√ − ( )² OR
𝑛 𝑛 𝑛

∑𝑑𝑖² ∑𝑑𝑖 ∑(𝑥𝑖−x̄ )²

S=√ − ( )² OR S=√
𝑛 𝑛 𝑛

 Ungroup Frequency Distribution:

∑𝑓𝑖𝑥𝑖² ∑𝑓𝑖𝑥𝑖² ∑𝑓𝑖𝑥𝑖

S=√ − (X̄)² OR S=√ − ( )² OR
𝑛 𝑛 𝑛

∑𝑓𝑖𝑑𝑖² ∑𝑓𝑖𝑑𝑖 ∑𝑓𝑖 (𝑥𝑖−x̄ )²

S=√ − ( )² OR S=√
𝑛 𝑛 𝑛

14
BBA SEM - III BS (BBA 305) Instructor: Dr. Sheetal Patel

Formulas:
Karl Person’s Product Moment Method
Only Observation:

𝑛 ∑ 𝑥𝑦−( ∑ 𝑥 ) ( ∑𝑦 )
r=
√𝑛 ∑ 𝑥²−( ∑ 𝑥 )² . √𝑛 ∑ 𝑦²−( ∑ 𝑦 )²

∑(𝑥− x̄) (𝑦− ȳ )

r=
√ ∑( 𝑥− x̄ )² . √∑( 𝑦− ȳ )²

𝑛 ∑ 𝑢𝑣−( ∑ 𝑢 ) ( ∑𝑣 )
r=
√𝑛 ∑ 𝑢²−( ∑ 𝑢 )² . √𝑛 ∑ 𝑣²−( ∑ 𝑣 )²

Ungroup Frequency Distribution and Group Frequency Distribution:

𝑛 ∑ 𝑓𝑢𝑣 −( ∑ 𝑢𝑓𝑢 ) ( ∑𝑣𝑓𝑣 )

r=
√𝑛 ∑ 𝑢²𝑓𝑢−( ∑ 𝑢𝑓𝑢 )² . √𝑛 ∑ 𝑣²𝑓𝑣 −( ∑ 𝑣𝑓𝑣 )²

Prof. Charles Edward Spearman’s Rank Correlation

6 ∑ 𝑑²
r=1–
𝑛 ( 𝑛2 − 1)

𝑚 𝑚 𝑚
6 {∑ 𝑑2 +12( 𝑚2 − 1)+12( 𝑚−1)+12( 𝑚2 − 1)+ ………..}
r=1–
𝑛 ( 𝑛2 − 1)

ASSIGNMENT – III
(1) What is Correlation?

(2) Explain the types of Correlation.

(3) Write a note on the Scatter diagram method with the importance & limitations of this
method.

(4) Write down the merits & demerits of Pearson’s product moment method & Spearman’s
rank correlation method.

(5) Differentiate between Karl Pearson method & Spearman method.

(6) Interpret the correlation coefficient.

33
QUE. 1) WHAT IS STATISTICS?
Ans. Introduction
Origin and Development of Statistics
The subject of statistics, as it seems, is not a new discipline but it is as old as the human society itself. It has been
used right from the existence of life on this earth, although the sphere of its utility was very much restricted. In
the old days, statistics was regarded as the ‘Science of Statecraft’ and was the by product of the administrative
activity of the state.
The word statistics seems to have been derived from the,
Latin word ‘Status’, Italian word ‘Statista’, German word ‘Statistik’, French word ‘Statistique’.
Each of which means a political state.
In the ancient time the scope of statistics was primarily limited to the collection of the following data by the
govt. for framing military and fiscal policies:
Age and Sex-wise population of the country. Property and Wealth of the country.
But now days the statistics is use in very large areas like that Medicine, Environment, Industry, Govt. Surveys,
Market Research, etc. In short, the person who like to solve practical problems, like to work with numbers, like
to work with people and like to work with computer, he/she use the Statistics. Statistics helps us make better
decisions.
Meaning of Statistics
Statistics is the art and scientific application of mathematical principles to the collection, analysis, presentation
and interpretation of numerical data.
Statistics is the art and science of deciding what are the appropriate data to collect, deciding how to collect them
efficiently and then using them to give information, answer – questions, draw inferences and make decisions.
Statistics means,
Producing trustworthy data Analyzing data to make their meaning clear Drawing practical conclusions
from data
In short, Statistics is use to solve problems in a wide variety of fields.
“Statistics is a tool for creating new understanding from a set of numbers.”
Statistics (1)Data= Facts, especially numerical facts, collected together for reference or information
(2)Information= Knowledge communicated concerning some particular fact
Definitions of Statistics
1) “Statistics may be called the science of counting.”- Bowley A.L.
2) “Statistics may rightly be called the science of average.”- Bowley A.L.
3) “Statistics is the science of estimates and probabilities.”- Boddington
4) “Statistics may be defined as the science of collection, presentation, analysis and interpretation of numerical
data.”- Croxton and Cowden
5) “Statistics is the science which deals with classification and tabulation of numerical facts as the basis for
explanation, description and comparison of phenomenon.”- Lovin
QUE. 2) WHAT IS DATA? EXPLAIN TYPES OF DATA.
Ans. Introduction
Data means the facts, especially numerical facts, collecting together for reference or information.
In other words, data means the numerical facts which are useful for investigator to reach the final conclusion of
the statistical problem. The raw data means the unorganized data or unprocessed data.
Types of Data
In the statistics there are four types of data but mainly two types of data. A) Primary Data B) Secondary Data
A) Primary Data: Primary data means the data which is collected first time. The investigator or the organizing
agency may collect the data originally is called primary data. Primary data means original data that have been
collected specially for the purpose in mind. Research where one gathers this kind of data is referred to as ‘field
research’. For example: A questionnaire
B) Secondary Data: The data which have already been collected and processed by some agency or person and
taken over from there and used by any other agency for their statistical work ate termed as secondary data.
In other words, we can say that secondary data are data that have been collected for another purpose and where
we will use statistical method with the primary data. It means that after performing statistical operations on
primary data the results become known as secondary data. Research where one gathers this kind of data is
referred to as desk research. For example: Data from a book, Data from the internet.
Other Two Types of Data
C) Qualitative Data: Qualitative data is not given numerically. Qualitative data is a categorical measurement
expressed not in terms of numbers, but rather by means of natural language description. For example: Favourite
Movie “Fast and Furious”
D) Quantitative Data: Quantitative data is numerically. Quantitative data is a numerical measurement
expressed not by means of a natural language description, but rather in terms of numbers. For example: Weight
– 45kg.
Que. 3) What is Primary data? Also explain methods of collecting primary data.
Ans. Primary Data: Primary data means the data which is collected first time. The investigator or the
organizing agency may collect the data originally is called primary data. Primary data means original data that
have been collected specially for the purpose in mind. Research where one gathers this kind of data is referred to
as ‘field research’. For example: A questionnaire
Methods of collecting Primary data
1) Direct personal investigation 2) Indirect oral interviews 3) Information received through local agencies 4)
Questionnaire method 5) Schedules sent through enumerators
1) Direct personal investigation: This method consists in the collection of data personally by the investigator
from the sources concerned. In other words, the investigator has to go to the field personally for making enquires
and soliciting information from the informants or respondents. This investigation very much restricts the scope
of the enquiry. This method should be used only if the investigation is generally local.
Merits: The first hand information obtained by the investigator himself is bound to more reliable and
accurate. When the audience is approached personally by the investigator, the response is likely to be more
encouraging. The investigator can extract proper information from the respondents by talking to them at their
educational level.
Demerits: This type of investigation is restrictive in nature and is suited only for intensive studies and not for
extensive enquiries. This type of investigation is handicapped due to lack of time, money and manpower. It is
particularly time consuming. The main drawback of this enquiry is that it is absolutely subjective in nature.
2) Indirect oral interview: When the ‘direct personal investigation’ is not practicable either because of lack of
time, money or the area is large the investigator used the method for collecting the primary data is “Indirect oral
interview”. For example, if we want to solicit information on certain social evils like if a person is addicted to
drinking, gambling or smoking, etc. The information on the gambling, drinking or smoking habits of an
individual can best be obtained by interviewing his personal friends, relatives or neighbours who know him
thoroughly well.
Merits: As compared with the method of ‘direct personal investigation’, this method is less expensive and
requires less time for conducting the enquiry. If necessary, the expert views and suggestions of the specialists
on the given problem can be obtained in order to formulate and conduct the enquiry more effectively and
efficiently.
Demerits: Due to lack of direct supervision and personal touch the investigator has to rely entirely on the
information supplied by the enumerators. If the wrong and improper choice of the witnesses will give biased
results which may adversely affect the findings of the enquiry.
3) Information received through local agencies:
In this method the information is not collected formally by the investigator or the enumerators. This method
consists in the appointment of local agents by the investigator in different parts of field of enquiry. These local
agencies in different regions collect the data according to their own ways, fashions, likings and decisions and
then submit their reports periodically to the central or head office where the data are processed for final analysis.
Merits: This method works out to be very cheap and economical for extensive investigations particularly if
the data are obtained through agents. Moreover, the required information can be obtained expeditiously since
only rough estimates are required.
Demerits: Since the different local agents collect the data in their own fashion and style, so the enquiry and
consequently the data may be not reliable or proper.
4) Questionnaire method: This method consists in preparing a questionnaire (A list of questions relating to the
field of enquiry and providing space for the answers to be filled by the respondents.) which is mailed to the
respondents with a request for quick response within the specified time. This method is usually used by the
research workers, private individuals, non-official agencies and sometimes even by government.
Merits: Of all the methods of collecting primary data the “Questionnaire method” is by far the most
economical method in terms of time, money and manpower. This method is used for extensive enquiries
covering a very wide area.
Demerits: The most serious drawback of this method is that it can be used only for educated population.
Quite often people might suppress correct data and furnish wrong replies then we cannot receive reliable data.
Another limitation is that the respondents are not willing to give answer some personal questions like income,
property, age, personal habits, etc.
5) Schedules sent through Enumerators: Before discussing this method it is desirable to make a distinction
between a questionnaire and a schedule. As already explained, Questionnaire in a list of questions which are
answered by the respondent himself/herself in this own handwriting. While schedule is the device of obtaining
answers to the questions in a form which is filled by the interviewers or enumerators (the field agents who put
these question) in a face to face situation with the respondents.
Merits: The enumerators can explain in detail the objectives and aims of the investigation to the respondents
impress upon term the need of furnishing the correct data. Unlike the “Questionnaire method” this technique
can be used with advantage even if the respondents are illiterate.
Demerits: It is fairly expensive method because the enumerators or institute is make their change which are
financially sound. It is also more time consuming as compared with the “Questionnaire method”. The
success of the method largely depends upon the efficiency and skill of the enumerators. If the enumerators are
not able to collect the data then the investigator cannot get the correct data.
QUE. 4) CHARACTERISTICS OF AN IDEAL QUESTIONNAIRE
1) The size of the questionnaire should be as small as possible.
2) The questions should be clear, brief, simple, unambiguous and precise.
3) The questions should be arranged in a natural logical sequence.
4) The usage of ‘multiple meaning’ and vague words should be avoided.
5) The questions should be capable of being easily answered by the respondents. The questions that rely too
much on the memory of the respondent should be avoided.
6) The questions affecting the sentiments and personal nature should never be asked.
7) Use main four types of questions in the questionnaire:-
Simple alternative questions: Such questions are answered by yes/no or Right/Wrong, etc.
Multiple choice questions: In such questions the possible answers are printed in the questionnaire and the
respondent is supposed to tick any one of them; E.g.;
What is your occupation?
a) Business b) private job c)Govt. job d) Any other
Specific information questions: Such questions are used to extract specific information like Name, Address,
B.O.D, etc.
Open questions: These types of questions are to be answered by the respondent in his own words like Aim,
Suggestions, etc.
8) The questions relating to mathematical calculation should be avoided.
9) The questions should be directly related to the objective of investigation.
10) Necessary instruction for filling the questionnaire should also be given in simple form and words.
11) Enough space should be provided for answers. The questionnaire should look as attractive as possible.
12) Before actually using questions a test check must always be done by obtaining answers from respondents. In
necessary the questionnaire should be modified.
QUE. 5) SOURCES OF SECONDARY DATA
The chief sources of secondary data may be broadly classified into the following two groups:1) Published
sources 2) Unpublished sources
1) Published Sources:
There are a number of national organizations and also international agencies. Which collect statistical data
relating to business, trade, labour, prices, consumption, production, industries, agriculture, income, currency
and exchange, health, population and a number of socio-economic phenomena and publish their findings in
statistical reports on a regular basis.(Monthly, Quarterly, Annually, Ad-hoc)
The published sources are consisting:
A) Official publications of central Govt.:
Monthly abstracts of statistic; statistical pocket book, India; Annual survey of Industries-General review;
Statistical system of India, etc. all published by the Central Statistical Organization (C.S.O.) New Delhi,
Census data in various census reports; vital statistics of India-all published by Register General of India
(R.G.I.), Various statistical reports on phenomenon relating to socio-economic and demographic conditions
published by National Sample Survey Organization (N.S.S.O.)
B) Publications of semi Govt. statistical organization:
Statistical department of the Reserve Bank of India, Mumbai. Economic department of the RBI. The
institute of Economic Growth, Delhi. Gokhale institute of Politics and Economics, Puna. The institute of
Foreign Trade, New Delhi.
C) Publication of Research institutions: Indian Council of Agricultural Research (I.C.A.R.), New Delhi.
Indian Statistical Institute (I.S.I) Indian Agricultural Statistics Research Institute (I.A.S.R.I)
D) Publications of commercial and financial institutions : Federation of India chamber of commerce and
industries (F.I.C.C.I ) Institute of chartered Accountants of India Trade unions Stock exchanges Bank
bodies Co-operative societies
E) Reports of various committees and commissions appointed by the Govt.: They are providing the
information related to the wages, dearness allowance, price, national income, taxation, land, education, etc.
Kothari commission report on educational reforms. Gupta commission report on Maruti Affairs.
 Wanchoo commission report on Taxation.
F) Newspaper and periodicals: Eastern economist Economic times The financial express Indian
journal of economic Commerce Capital Transport
G) International publication: United Nations Organization (U.N.O) UNO statistical year book
Demographic year book World Health Organization (W.H.O) International Labour Organization (I.L.O)
International Monetary Fund (I.M.F)
2) Unpublished data: The statistical data need not always be published. There are various sources of
unpublished statistical material such as the records maintained by private firms or business enterprises who may
not like to release their data to any outside agency; the various department and offices of the Central and State
Governments; the researches carried out by the individual research scholars in the universities or research
institutes.
QUE. 1) WHAT IS CORRELATION?
We have studied problems relating to one variable. We know that a distribution can be studied with the help of
measures of central values and measures of dispersion. But many times we come across two variables which
appear to move simultaneously E.G., if we study heights and weights of a group of persons, we observe that a
person with more weight. Thus, height and weight are found to be related variable. Similarly we come across
many pairs of variables which may found to be related. The income and expenditure of persons, numbers of
vehicles and number of accidents; demand and price of commodity etc. are very familiar example of related
variables. Generally when there are simultaneous changes in the values of two variables, we observe that there
exists some cause and effects relationship between the two variables. The relationship between income and
expenditure of persons, between demand and price of a commodity are illustrations of relationship due to cause
and effect. Sometimes there may not be the direct cause, and effect relationship between two variables, but they
may be indirectly related with each other. Simultaneous changes in the values of two variables may be due to
some other factor. E.G., the simultaneous increase in the sales of umbrellas and rain shoes may be due to heavy
rain. When the changes in the values of two variables are simultaneous and when there is cause and effect
relationship between two variables, they are said to be correlated variables. Thus, correlation is a statistical tool
with the help of which the relationship between two variables can be studied. It should be carefully understood
that the variables are said to be correlated provided there exists causation between them.
In the study of two variables the relationship may be Linear or non-linear. In this chapter only discuss
the problems in which the relationship is linear. According to statistician king, “Correlation means
that between two series or groups of data there exists some causal connection.” Bondington has
defined correlation in the following way; “It does not matter whether the data in one section changes in the
same or the reverse direction to that in the other, so long as a movement in sympathy is apparent.”
According to A.M. Tuttle, “An analysis of the co-variation of two or more variables is usually called
Correlation.”
QUE. 2) TYPES OF CORRELATION
The Correlation between two variables can be of the following two types: 1) Positive correlation 2) Negative
correlation
1) Positive correlation: Sometimes the changes in the values of two variables are in the same direction i.e. when
the values of one variable increase, the values of the other variable also increase and when the values of one
variable decrease, the value of other variable also decrease, the correlation between them is said to be positive.
The correlation between age of husband and age of wife, income and expenditure are the examples of positive
correlation. The following table gives age of husbands and their wife. It can be seen that when the age of
husband is more, the age of wife is also more. Thus there is positive correlation between age of husband and age
of wife.
2) Negative correlation: When the changes in the values of two variables are in opposite direction, it is called
negative correlation. When the values of one variable increase, the values of the other variable decrease, and when
the values of one variable decrease, the values of the other variable increase, the correlation between them is said
to be negative. The correlation between the price of a commodity and its demand, expenditure and saving, age of
driver and number of accidents are the examples of negative correlation.
The following table gives the price of a commodity and its demand. If can be seen that when the price
increase, the demand decrease. Thus there is negative correlation between the price and demand.
QUE. 3) METHODS OF MEASURING CORRELATION
We shall discuss the following three methods of studying direction and degree of relationship between to variables.
1) Scatter diagram method 2) Karl Pearson’s product moment method
3) Spearman’s method of rank correlation
1) Scatter diagram method: This is very simple method of studying the relationship between two variables. In this
method one variable is taken on X-axis and the other variable is taken on Y-axis and for each pair of values, points
are plotted on the graph paper.
Types of correlation by Scatter diagram method:
Perfect Positive correlation: The changes in the values of two variables are in same direction and in the same
proportion it is called Perfect Positive Correlation. The curve of perfect positive correlation is up-word sloping in
straight line. Where r = +1 /
Partial Positive Correlation:
The changes in the value of two variables are in same direction but not in the same proportion it is called Partial
Positive Correlation. The curve of partial positive correlation is up-word sloping but not in straight line. Where r=0 to
+1 /\/\
Perfect Negative correlation:
The changes in the value of two variables are in opposite direction and in the same proportion it is called Perfect
Negative Correlation. The curve of perfect negative correlation is down-word sloping in straight line. Where r = -1 \
Partial Negative Correlation:
The changes in the value of two variables are in opposite direction but not in the same direction it is called Partial
Negative Correlation. The curve of partial negative correlation is down-word sloping but not in straight line. Where r
= -1 to 0 \/\/
Absence of correlation / Independent correlation / No relation:
The changes in the value of two variables are randomly it is called Absence of the Correlation. Where r = 0……
2) Karl Pearson’s product moment method:
We have seen that the scatter diagram method helps us in knowing the direction of the relationship between the
various, but it cannot give us the exact amount of the relationship between the variables. Among different methods
of finding out the degree and the direction of relationship between two variables, the method given by Karl Pearson
is most accurate and it is very widely used. By this method the amount of relationship between two variables can be
numerically measured. The numerical measure of correlation between two variables is known as correlation co-
efficient and it is denoted by ‘r’. Karl Pearson has defined correlation co-efficient in the following way.
Merits and limitations of Pearson’s correlation co-efficient:
Karl Pearson’s co-efficient of correlation is the best measure for representing the relationship between two
variables. The degree and direction of the relationship between the variables can be obtained by it. However the
following are some of the limitation of it;
If is based on the assumption of linearity of relationship between the variables. The computation by this method
is difficult compared to other methods. The correlation co-efficient is highly influenced by extreme pairs of
observations. It is always difficult to interpret the correlation co-efficient correctly.
3) Spearman’s method of rank correlation:
Prof. Charles Edward Spearman has given one method of finding out correlation co-efficient between two variables.
In this method instead of values, the ranks are used to find out correlation co-efficient and hence the method is
known as the method of rank correlation. We know that qualitative phenomena cannot be numerically expressed.
But it is convenient to assign them ranks, e.g. suppose there are 10 competitors in a beauty contest. It is
inconvenient to give marks to these competitors in a beauty contest. Instead of that they can be easily assigned
ranks as first rank, second rank, etc. If two judges have given ranks to the same participants then we may be
interested in knowing how far the two judges agree in assigning ranks. This can be measured by co-efficient of rank
correlation. Method of rank correlation can thus be used for finding out the relationship between two qualitative
phenomena like honesty, intelligence, poverty, etc.
Merits : This method is easier to understand and apply compared to Karl Pearson’s method. When the data are
of qualitative nature like honesty, beauty, intelligence, etc. this method is convenient. When the dispersion in a
series is more this method is useful. When the ranks are given instead of values then this is the only method that
can be used.
Limitations: This method does not give accurate results as compared to Pearson’s method. When there are
none observations, it is tedious to assign ranks. The method cannot be used for data given in a bivariate frequency
distribution.
QUE. 4) INTERPRETATION OF CORRELATION CO-EFFICIENT
The correlation co-efficient expresses the degree and direction of the relationship between the variables. Having
obtained the value of the correlation co-efficient, it is essential to interpret it. The sign of the correlation co-efficient
gives the idea about the direction of the relationship while the numerical value gives the idea about the closeness
of the relationship. However, the interpretation of the correlation co-efficient mainly depends upon the
experience of dealing with such problems. The following general rules are useful in interpreting the value of
correlation co-efficient.
(1) Interpretation of r = +1: r = +1 shows perfect positive correlation between two variables. For such variables
an increase in the value of one variable is associated with a proportional increase in the value of the other
variable. The points on the scatter diagram for such variables are in a straight line in an increasing order.
(2) Interpretation of r = -1: r = -1 shows perfect negative correlation between two variables. For such variables
an increase in the value of one variable is associated with a proportional decrease in the value of the other
variable. The points on the scatter diagram for such variables are in a one straight line in decreasing order.
(3) Interpretation of r = 0: r = 0 shows absence of the relationship between the variables. Such variables are
said to be uncorrelated. The variables are independent and the points on the scatter diagram are randomly
distributed. (4) If the value of r is nearer to +1 or -1, the relationship between the variables is closer, and if the
value of r is nearer to zero, the relationship is less close. (5) The relationship between the variables is not
proportional to the value of r. i.e. r = 0.8 does not indicate that the relation is two times closer than when r =
0.4, r = 0.8 indicate more closeness of the relationship than r = 0.4. (6) Before interpreting the value of r, we
should examine whether there exist cause and effect relationship between the variables. (7) In estimating the
population correlation co-efficient from the value of sample correlation co-efficient the probable error of r
should also be taken into consideration.
.