The correlation coefficient,
r , tells us about the strength and direction of the linear relationship between
x and
y . However, the reliability of the linear model also depends on how many observed data points are in the sample. We need to look at both the value of the correlation coefficient
r and the sample size
n , together.
We perform a hypothesis test of the
"significance of the correlation coefficient" to decide whether the linear relationship in the sample data is strong enough to use to model the relationship in the population.
The sample data are used to compute
r , the correlation coefficient for the sample. If we had data for the entire population, we could find the population correlation coefficient. But because we have only have sample data, we cannot calculate the population correlation coefficient. The sample correlation coefficient,
r , is our estimate of the unknown population correlation coefficient.
The symbol for the population correlation coefficient is
ρ , the Greek letter "rho."
ρ = population correlation coefficient (unknown)
r = sample correlation coefficient (known; calculated from sample data)
The hypothesis test lets us decide whether the value of the population correlation coefficient
ρ is "close to zero" or "significantly different from zero". We decide this based on the sample correlation coefficient
r and the sample size
n .
If the test concludes that the correlation coefficient is significantly different from zero, we say that the correlation coefficient is "significant."
Conclusion: There is sufficient evidence to conclude that there is a significant linear relationship between
x and
y because the correlation coefficient is significantly different from zero.
What the conclusion means: There is a significant linear relationship between
x and
y . We can use the regression line to model the linear relationship between
x and
y in the population.
If the test concludes that the correlation coefficient is not significantly different from zero (it is close to zero), we say that correlation coefficient is "not significant".
Conclusion: "There is insufficient evidence to conclude that there is a significant linear relationship between
x and
y because the correlation coefficient is not significantly different from zero."
What the conclusion means: There is not a significant linear relationship between
x and
y . Therefore, we CANNOT use the regression line to model a linear relationship between
x and
y in the population.
Note
If
r is significant and the scatter plot shows a linear trend, the line can be used to predict the value of
y for values of
x that are within the domain of observed
x values.
If
r is not significant OR if the scatter plot does not show a linear trend, the line should not be used for prediction.
If
r is significant and if the scatter plot shows a linear trend, the line may NOT be appropriate or reliable for prediction OUTSIDE the domain of observed
x values in the data.
economics theory describes individual behavior as the result of a process of optimization under constraints the objective to be reached being determined by
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Economics is a branch of social science that deal with How to wise use of resource ,s
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need
WARKISA
Economic Needs: In economics, needs are goods or services that are necessary for maintaining a certain standard of living. This includes things like healthcare, education, and transportation.
Money market is a branch or segment of financial market where short-term debt instruments are traded upon. The instruments in this market includes Treasury bills, Bonds, Commercial Papers, Call money among other.
