Categories: Finance

Correlation Analysis

Correlation is a measure of relationship between two variables. The two variables must be numeric or scale. So basically correlation is applied on the quantitative variables.

Correlation Coefficient

Correlation Coefficient gives the mathematical value for measuring the strength of the linear relationship between two variables. It ranges from -1 to +1.

• +1 representing absolute positive linear relationship (X increases, Y increases).

•    -1 representing absolute inverse relationship (X increases, Y decreases).

•    0 representing no linear relationship (X and Y have no pattern).

Bivariate Correlation

Bivariate Correlation tests the strength of the relationship between two variables without giving any consideration to the interference some other variable might cause to the relationship between the two variables being tested.

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