Correlation Analysis

Meaning and Definition of Correlation

Correlation analysis is an attempt to examine the relationship between two variables. It analyses the
association between two or more variables. It is a bi-variate analysis. According to Croxton and Cowden,
“when the relationship is of quantitative nature, the appropriate statistical
tool for discovering and measuring the relationship and expressing it in a brief formula is known as
correlation”
According to A.M.Tuttle, “Correlation is an analysis of the co-variation between two or more variables.”
According to Ya-Lun-Chou, “Correlation analysis is an attempt to determine the degree of relationship
between variables.”
Correlation analysis helps to know the direction ofrelationship as well as the degree of relationship exists
between two or more variables.

Significance of the study of Correlation Analysis

· It helps determine the degree of correlation between the two variables in a single figure.
· It makes understanding of economic behaviour easier and identifies critical variables that are
significant.
· When two variables are correlated, the value of one variable can be estimated using the value of
the other. This is performed with the regression coefficients.
· In the business world, correlation helps in taking decisions. The correlation helps in making
predictions which helps in reducing uncertainty. It is so because the predictions based on
correlation are probably reliable and close to reality.

Types of Correlation
I. Positive and Negative Correlation
(a) Positive Correlation: If two variables move in the same direction, then the correlation is called
positive. For example, price and supply are positively correlated. When
price goes up, supply goes up and vice versa.

(b) Negative Correlation: If two variables move in the

opposite direction, then the correlation is called negative. For example, price and demand are negatively
correlated. When price goes up, demand falls down and vice versa.
II. Simple, Partial and Multiple Correlation
(a) Simple Correlation:
In a correlation analysis, if there are only two variables, then the correlation analysis is called
simple correlation. For example, the relationship between weight and height, price and demand, price
and supply, etc.
(b) Partial Correlation:
When there are more than two variables and we study the relationship between any two
variables only, assuming other variables as constant, it is called partial correlation. For example, the
study of the relationship between rainfall and agricultural produce, without taking into consideration the
effects of other factors such as quality of seeds, quality of soil, use of fertilizer, etc.
(c) Multiple Correlation:
When there are more than two variables and we study the relationship between one variable
and all the other variables taken together, then it is the case of multiple correlation. Suppose there are
three variables, namely x, y and z. The correlation between x and (y & z) taken together is multiple
correlation. Similarly, the relation between y and (x & z) taken together is multiple correlation. Again, the
relation between z and (x & y) taken together is multiple
correlation.
III. Linear and Non-linear Correlation
(a) Linear Correlation:
When the amount of change in one variable leads to a constant ratio of change in the other
variable, the relationship is called linear correlation. For example, if price falls down by 10%, it leads to a
fall in supply by 12% each time, it is linear correlation. When we plot the data on graph, we will get a
straight line. Here, the relationship between the variables may be expressed in the form of y = ax + b.
(b) Non-linear Correlation:
When the amount of change in one variable does not lead to a constant ratio of change in
the other variable, the relationship is called non-linear correlation. When we plot the data on graph, we
never get a straight line. Therefore, non-linear correlation is also called curvi-linear correlation.
IV. Logical and Illogical Correlation
(a) Logical Correlation:
When the correlation between two variables is not only mathematically defined but also logically sound,
it is called logical correlation. For example, correlation between price and demand.
(b) Illogical Correlation:
When the correlation between two variables is mathematically defined but not logically
sound, it is called illogical correlation. For example, correlation between availability of rainfall and height
of people. This type of correlation is also known as Spurious correlation or Non-sense correlation.

Degree of Correlation
The degree of correlation is measured through the coefficient of correlation. The degree of correlation
for the given variables can be expressed in the following ways:

1. Perfect Correlation:
If the relationship between the two variables is in such a way that it varies in equal proportion (increase
or decrease) it is said to be perfectly correlated. This can be of two types:
Positive Correlation: When the proportional change in two variables is in the same direction, it is said to
be positively correlated. In this case, the Coefficient of Correlation is shown as +1.
Negative Correlation: When the proportional change in two variables is in the opposite direction, it is
said to be negatively correlated. In this case, the Coefficient of Correlation is shown as -1.
2. Zero Correlation:
If there is no relation between two series or variables, it is said to have zero or no correlation. It means
that if one variable changes and it does not have any impact on the other variable, then there is a lack of
correlation between them. In such cases, the Coefficient of Correlation will be 0.
3. Limited Degree of Correlation:
There is a situation with a limited degree of correlation between perfect and absence of correlation. In
real life, it was found that there is a limited degree of correlation.
The coefficient of correlation, in this case, lies between +1 and -1.
Correlation is limited negative when there are unequal changes in the opposite direction.
Correlation is limited and positive when there are unequal changes in the same direction.
The degree of correlation can be low (when the coefficient of correlation lies between 0 and 0.25),
moderate (when the coefficient of correlation lies between 0.25 and 0.75), or high (when the coefficient
of correlation lies between 0.75 and 1).
Zero order
Zeroth-Order Reactions
A zeroth-order reaction is one whose rate is independent of concentration; its differential rate law is
rate=k.
We refer to these reactions as zeroth order because we could also write their rate in a form such that the
exponent of the reactant in the rate law is 0:
rate=−Δ[A]
Δt=k[reactant]0=k(1)=k(1.6.1)
Because rate is independent of reactant concentration, a graph of the concentration of any reactant as a
function of time is a straight line with a slope of −k
. The value of k
is negative because the concentration of the reactant decreases with time. Conversely, a graph of the
concentration of any product as a function of time is a straight line with a slope of k
, a positive value.
First-Order Reactions
In a first-order reaction, the reaction rate is directly proportional to the concentration of one of the
reactants. First-order reactions often have the general form A → products. The differential rate for a first-
order reaction is as follows:
rate=−Δ[A]
Δt=k[A](1.6.5)
If the concentration of A is doubled, the reaction rate doubles; if the concentration of A is increased by a
factor of 10, the reaction rate increases by a factor of 10, and so forth. Because the units of the reaction
rate are always moles per liter per second, the units of a first-order rate constant are reciprocal seconds
(s−1).
The integrated rate law for a first-order reaction can be written in two different ways: one using
exponents and one using logarithms. The exponential form is as follows:

[A]=[A]0e−kt(1.6.6)
where [A]0
is the initial concentration of reactant A
at t=0
; k
is the rate constant; and e is the base of the natural logarithms, which has the value 2.718 to three
decimal places. Recall that an integrated rate law gives the relationship between reactant concentration
and time. Equation 1.6.6

Second-Order Reactions
The simplest kind of second-order reaction is one whose rate is proportional to the square of the
concentration of one reactant. These generally have the form
2A→products⋅
A second kind of second-order reaction has a reaction rate that is proportional to the product of the
concentrations of two reactants. Such reactions generally have the form A + B → products. An
example of the former is a dimerization reaction, in which two smaller molecules, each called a
monomer, combine to form a larger molecule (a dimer).
The differential rate law for the simplest second-order reaction in which 2A → products is as
follows:
rate=−Δ[A]2Δt=k[A]2(1.6.8)
Consequently, doubling the concentration of A quadruples the reaction rate. For the units of the
reaction rate to be moles per liter per second (M/s), the units of a second-order rate constant must
be the inverse (M−1·s−1). Because the units of molarity are expressed as mol/L, the unit of the rate
constant can also be written as L(mol·s).
For the reaction 2A → products, the following integrated rate law describes the concentration of the
reactant at a given time:
1[A]=1[A]0+kt(1.6.9)
Because Equation 1.6.9
has the form of an algebraic equation for a straight line, y = mx + b, with y = 1/[A] and b = 1/[A]0,
a plot of 1/[A] versus t for a simple second-order reaction is a straight line with a slope of k and an
intercept of 1/[A]0.

Second-order reactions generally have the form 2A → products or A + B → products.

PARTIAL CORRELATION
When there are more than two variables and we study
the relationship between any two variables only, assuming
other variables as constant, it is called partial correlation. For
example, the study of the relationship between rainfall and
agricultural produce, without taking into consideration the
effects of other factors such as quality of seeds, quality of soil,
use of fertilizer, etc.
Partial correlation coefficient measures the relationship
between one variable and one of the other variables assuming
that the effect of the rest of the variables is eliminated.

If r12 = 0.98, r13 = 0.44 and r23 = 0.54, find (1) r12.3,
(2) r13.2 and (3) r23.1

Sol:
(1)
r12.3 = r12 – r13 r23
√1–r13sq √1–r23sq

r12.3 = 0.98 – (0.44 x 0.54)

√1–0.44sq √1–0.54sq

= 0.98 – 0.2376
√1–0.1936 √1–0.2916

= 0.7424/ (0.898 x 0.842) = 0.7424 / 0.7561 = 0.982

(2)
r13.2 = r13 – r12 r23
√1–r12sq √1–r23sq

r12.3 = 0.44 – (0.98 x 0.54)

√1–0.98sq √1–0.54sq

= 0.44 – 0.5292
 √1–0.9604 √1–0.2916

= – 0.0892/ (0.199 x 0.842) = – 0.0892 / 0.1676 = – 0.5322

3)
r23.1 = r23 – r12 r13
√1–r12sq √1–r13sq

r12.3 = 0.54 – (0.98 x 0.44)

√1–0.98sq √1–0.44sq

= 0.54 – 0.4312
√1–0.9604 √1–0.1936

= 0.1088/ (0.199 x 0.898) = 0.1088 / 0.1787 = 0.6088

MULTIPLE CORRELATION
When there are more than two variables and we study
the relationship between one variable and all the other
variables taken together, then it is the case of multiple
correlation. Suppose there are three variables, namely x, y and
z. The correlation between x and (y & z) taken together is
multiple correlation. Similarly, the relation between y and (x &
z) taken together is multiple correlation. Again, the relation
between z and (x & y) taken together is multiple correlation. In
all these cases, the correlation coefficient obtained will be
termed as coefficient of multiple correlation.

Qn: If r12 = 0.6, r23 = r13 = 0.8, find R1.23, R2.13 and R3.12 .
Sol:
R1.23 = √ [r12sq+ r13sq – 2 r12 r13 r23]÷ [1– r23sq]

= √[0.6sq+ 0.8sq– 2 x 0.6 x 0.8 x 0.8]÷ [1– 0.8sq]

= √[0.36 + 0.64 – 0.768]÷ [1– 0.64]
= √0.232 /0.36 = √0.6444 = 0.8028

R2.13 = √ [r12sq+ r23sq– 2 r12 r13 r23]÷ [1– r13sq]

= √[0.6sq+ 0.8sq– 2 x 0.6 x 0.8 x 0.8]÷ [1– 0.8sq]

= √[0.36 + 0.64 – 0.768]÷ [1– 0.64]
= √0.232 /0.36 = √0.6444 = 0.8028

R3.12 = √ [r13sq + r23sq– 2 r12 r13 r23]÷ [1– r12sq]

= √[0.8sq+ 0.8sq– 2 x 0.6 x 0.8 x 0.8]÷ [1– 0.6sq]

= √[0.64 + 0.64 – 0.768]÷ [1– 0.36]
= √0.512 /0.64 = √0.8 = 0.8944