Correlation and regression
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What does the correlation coefficient measure?
The correlation coefficient measures the strength and direction of the linear relationship between two variables, ranging from -1 to +1.
What is the formula for Karl Pearson's correlation coefficient?
r = Σ(dx·dy) / √(Σdx² × Σdy²)
What is a positive correlation in the context of banking data?
A positive correlation means that as one variable increases (e.g., credit score), the other variable also increases (e.g., loan repayment rate), indicating a direct relationship.
What type of correlation exists when both variables increase together?
Positive correlation exists when both variables increase together.
What is the range of Karl Pearson's coefficient of correlation?
Karl Pearson's coefficient of correlation ranges from -1 to +1, where -1 indicates perfect negative correlation, 0 indicates no correlation, and +1 indicates perfect positive correlation.
What does a correlation coefficient of +1 indicate?
Perfect positive linear relationship between two variables.
What does a correlation coefficient of zero imply?
A correlation coefficient of zero implies that there is no linear relationship between the two variables, though a non-linear relationship may still exist.
What does a correlation coefficient of -1 indicate?
Perfect negative linear relationship between two variables.
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