Correlation and Regression
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What does correlation measure between two variables?
Correlation measures the degree and direction of the linear association between two variables. It does not establish cause and effect.
What visual tool is used to detect a relationship between two variables before any calculation?
Scatter diagram
What is the key difference between correlation and regression?
Correlation measures how strongly two variables move together, while regression fits a predictive equation so that knowing one variable allows us to estimate the other.
In a scatter diagram, what pattern of dots indicates a direct (positive) relationship?
Dots rise from lower-left to upper-right
Why is correlation said to be symmetric while regression is not?
The correlation of x with y equals the correlation of y with x, making it symmetric. Regression is not symmetric because the line of y on x is different from the line of x on y.
What type of relationship is shown in a scatter diagram when dots fall from upper-left to lower-right?
Inverse (negative) relationship
What does a correlation coefficient of r = +1 indicate?
A value of r = +1 indicates a perfect direct (positive) correlation between the two variables.
What is a banking example of a direct (positive) correlation in a scatter diagram?
Income vs deposit balance
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