CORRELATION: MEANING, DEFINITION AND ITS TYPES or (Classification)

💖

WELCOME TO YOU

INTRODUCTION

Correlation is very useful for economists and mainly for psychologists to study relationship between TWO variables. we not only measure the existing relationship but also we can measure the importance of relationship between them. 

Concept of correlation

OR

Meaning of correlation

Correlation refers to the relationship between two variables is known as correlation. or in other words (It refers to the relation between an independent variable and a dependent variable). So, It helps to analyse the relationship between two or more variables. 

 

It is a statistical technique which measures the quantitative relationship between different variables. 

for example, relationship between :

• Price and demand
• Price and supply
• Demand and other determinants or determinant variables.....

Correlation compulsorily lies between +1 and -1 only. that means, if the correlation value (Coefficient value) is more than +1 or -1, it is invalid or wrong. 

Definitions of correlation

• A.M Tuttle: correlation is an analysis of the co-variation between two or more variables.
• Simpson and Kofka: Correlation analysis deals with the association between two or more variables
• Ya Lun Chou: Correlation analysis attempts to determine the degree of relationship between variables

NOTE

From the above given definitions, we can clearly analyse that, correlation is nothing but the measurement of existing relationship between 2 variables.

Types of correlation

OR

Classification of correlation

Generally correlation is mainly classified into 2 types.

• Positive and negative correlation,
• Linear and non-linear correlation.
• Simple and  multiple correlation
• Partial and complete correlation.

Different types of correlation are:

• Positive correlation
• Negative correlation 
• Zero correlation
• Linear correlation
• Linear positive correlation
• linear negative correlation
• Non-linear correlation
• non-linear positive correlation
• non-linear negative correlation
• complete correlation
• Multiple correlation
• Simple correlation
• partial correlation. 

Above types of correlation is explained simply as follows

Positive correlation (Direct relation or positive relation)

When two variables(X and Y) move in the same direction, such a relation is called positive correlation. In this case, if 1 variable increases, another variable also increases and vice versa.

For example, correlation between price and supply variables, rainfall and crops, etc.

*Supply increases with the increase in price. Same supply decreases or diminishes with decreasing price.

Negative correlation (Inverse relation or opposite relation)

If 2 variables (X and Y) are moving in opposite direction, it is known as negative correlation. If any 1 variable increases, other variable decreases and vice versa. for example,

Relationship between demand and price, vaccinations and illnesses (EG: covid19 virus). Generally, When price of a commodity increases, automatically the demand falls. When people take more vaccines, the people become more healthier i.e. illnesses decreases. 

Complete correlation

In correlation analysis, Complete correlation between two variables is expressed by +1 or -1. 

Linear correlation

If the ratio of change of 2 variables (X and Y) remains constant, then it is called as linear correlation. in other words, the proportionate change in variables is known as linear correlation. Here the variables changes equally. When we present this relationship through a graph, it forms a straight line. 

Simple correlation

simple correlation means the relationship between only 2 variables is called as simple correlation. In other words, study of the relationship between only 2 variables like supply and price, demand and quantity, demand and supply, etc. 

Partial correlation

It is also a method used to study the relationship between 2 variables by keeping other variables constant. for example, increase of land production (rice) and irrigation (water) are 2 variables. increase of water facilities is also one of the important cause of increase in rice production. but, that is not the only variable to increase production. there are number of other variables (determinants) to increase the level of production. here, the other remaining variables are assumed constant.  this analysis is known as partial correlation.

Multiple correlation

Multiple correlation refers to the study of 3 or more variables is known as multiple correlation. 

For example, 

assume National income is a variable. changes in national income is based on its determinants. let us assume that each determinant factor as a variables. then this will become the study of more than 2 variables because, there are number of determinants for national income.

Degrees of correlation

Positive values = positive degree. negative values = negative degree.

• Perfect positive correlation = +1
• perfect negative correlation = -1
• High degree of correlation = values between 0.57 and 1.
• Moderate degree of correlation: values between 0.25 to 0.75
• Low degree correlation = values from 0 to 0.25
• No correlation = 0

THANK YOU FRIENDS

Thank you for visiting. Good to see you.