Correlation

Question 1

What is correlation?

Answer 1

• considers relationship between two sets of data
• two different sets of data for same time period are plotted onto a graph
• line of best fit is then drawn to see if there is a relationship between sets
• should be a straight line as near to all points plotted as possible

Question 2

What do the characteristics of the line show?

Answer 2

• if the line slopes upwards from left to right, data has positive correlation, one rises when the other does
• downwards from left to right than negative correlation, one falls the other rises
• the closer the line to data points the stronger the correlation
• many things may appear to have a link but may not be a relationship
• causal link between sets of data must be established

Question 3

How can a business use correlation?

Answer 3

• helps to understand relationship between two variables, negative or positive
• allows business to judge what happens when one variable goes up or down
• seeing the strength of correlation will allow business to judge how big the effect is
• line of best fit used to make decisions and predict the future -if one variable changes how will it effect the other
• line can also be extrapolated to work out higher or lower relationships