Bivariate Analysis: Measures of Association

Measures of Association

Refers to bivariate statistical techniques used to measure the strength of a relationship between two variables.

The chi-square (2) test provides information about whether two or more less-than interval variables are interrelated. Correlation analysis is most appropriate for interval or ratio variables. Regression can accommodate either less-than interval independent variables, but the dependent variable must be continuous. CovarianceExtent to which two variables are associated systematically with each other.

Common Bivariate Tests

Type of Measurement Measure of Association Chi-Square Phi Coefficient Contingency Coefficient Chi-square Rank Correlation Correlation Coefficient Bivariate Regression

Nominal

Ordinal Scales

Interval and Ratio Scales

Walkups First Laws of Statistics

Law No. 1 Everything correlates with everything, especially when the same individual defines the variables to be correlated. Law No. 2 It wont help very much to find a good correlation between the variable you are interested in and some other variable that you dont understand any better.

Walkups First Laws of Statistics

Law No. 3

Unless you can think of a logical reason why two variables should be connected as cause and effect, it doesnt help much to find a correlation between them.

In Columbus, Ohio, the mean monthly rainfall correlates very nicely with the number of letters in the names of the months!

Correlation

.. is the measure of association

between two at least interval scaled variables such as age and income, sales and selling expenses.

Correlation

... is a mathematical relationship. It can

which ranges from +1 to -1.

never prove a casual connection. It does however give support to an explanation based on logic.

The correlation coefficient (r) for two variables

(X,Y) is

rxy

Simple Correlation Coefficient

rxy ryx

rxy. . (R) is a The correlation coefficient. .

measure of strength and direction of association

X X Y Y Xi X Yi Y
i i 2

-1

+1

R ranges between -1 (perfect negative linear relationship) to +1 (perfect positive linear relationship). R near zero reflects the absence of linear association

Simple Correlation Coefficient

Y

rxy

Correlation Patterns
NO CORRELATION R=0

Correlation Patterns
Negative correlation . . . The variables move in opposite directions. A high value on one variable will be associated with a low value on a 2nd variable
PERFECT NEGATIVE CORRELATION R = -1.0

Positive Correlation
. . . As one variable (x) increases or decreases, the second variable (y) increases or decreases. The variables move in the same direction. Market Share (y)

Brand Awareness (x) Positive correlation: As brand awareness , market increases

Correlation Coefficient
There is linear correlation

rxy
There is linear correlation

No linear correlation

-1

{
0
Decision points

Correlation Coefficient
SAMPLE SIZE For P<.05 n

rxy
Decision Points
For

Statistical Significance
At P<.05

5 6 7 8 9 10 100

.878 .811 .754 .707 .666 .632 .196

Statistical Significance

Ho: r = 0
t = xy

Square root of n-2 divided by 1-r squared

Correlation Coefficient Interpretation

Strongly Disagree
Strongly Agree

Neutral

Good Taste
Strongly Agree

3
Neutral

4*

Strongly Disagree

High price

4*

Statistical Results: r = -.61, p = .07, n =100 As the taste of seven up increases, the price
Strongly Disagree Neutral Strongly Agree

Simple Correlation Coefficient

Calculation of r

rxy

6.3389 17.837 5.589

.635

6.3389 99.712

Pg 629

Coefficient of Determination

Coefficient of Determination (R2)

A measure obtained by squaring the correlation coefficient; the proportion of the total variance of a variable accounted for by another value of another variable. Measures that part of the total variance of Y that is accounted for by knowing the value of X.

Explained variance R Total Variance

2

EXHIBIT 23.3

Correlation Analysis of Number of Hours Worked in Manufacturing Industries with Unemployment Rate

Correlation Matrix

Correlation matrix -The standard form for

reporting correlation coefficients for more than two variables.

The Significance of the Correlation- The

procedure for determining statistical significance of a correlation coefficient is the t-test.

Correlation Matrix for 3 variables

The standard form for reporting correlation results.

Var1 Var1 Var2 Var3 1.0 0.45 0.31 Var2 0.45 1.0 0.10 Var3 0.31 0.10 1.0

EXHIBIT 23.4

Pearson Product-Moment Correlation Matrix for Salesperson Examplea

aNumbers bp<

below the diagonal are for the sample; those above the diagonal are omitted.

.001. cp< .01. dp< .05.

Correlation Does Not Mean Causation

When two variables covary, they display concomitant variation. Systematic covariation (a high correlation) does not in and of itself establish causality Roosters crow and the rising of the sun

Rooster does not cause the sun to rise. Variables covary because they are both influenced by a third variable

Teachers salaries and the consumption of liquor

Excel Spreadsheet The Correlation coefficient for two variables, X and Y is computed by the following excel instruction. Fx = correl (col2:col22:col3,col32)
Where Xs data is in column 2 and Ys data is in column 3.

Correlation

Correlation Coefficient, r = .75

Correlation: Player Salary and Ticket Price
30 20 10 0 -10 -20
1995 1996 1997 1998 1999 2000 2001

Change in Ticket Price Change in Player Salary

Regression Analysis