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    Correlation PDF

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    Correlation is a statistical measure of the strength and direction of the relationship between two random variables. It is used to identify variables that may be useful for model building and to identify issues like multicollinearity. While correlation indicates association, it does not necessarily imply causation. Correlation coefficients are used to measure both the direction and strength of linear relationships between continuous variables.

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    Correlation PDF

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    Bandita Parida
    43 views66 pages
    Correlation is a statistical measure of the strength and direction of the relationship between two random variables. It is used to identify variables that may be useful for model building and to identify issues like multicollinearity. While correlation indicates association, it does not necessarily imply causation. Correlation coefficients are used to measure both the direction and strength of linear relationships between continuous variables.

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    Correlation is a statistical measure of the strength and direction of the relationship between two random variables. It is used to identify variables that may be useful for model building and to identify issues like multicollinearity. While correlation indicates association, it does not necessarily imply causation. Correlation coefficients are used to measure both the direction and strength of linear relationships between continuous variables.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    43 views66 pages

    Correlation PDF

    Uploaded by

    Bandita Parida
    Correlation is a statistical measure of the strength and direction of the relationship between two random variables. It is used to identify variables that may be useful for model building and to identify issues like multicollinearity. While correlation indicates association, it does not necessarily imply causation. Correlation coefficients are used to measure both the direction and strength of linear relationships between continuous variables.

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    Correlation

    Prof. Kunal Ghosh


    Correlation

    • Correlation is a statistical measure of an association relationship


    between two random variables.

    • Correlation is not necessarily a causal relationship. Correlation is


    important in analytics since it helps to identify variables that may be
    used in the model building and also useful for identifying issues
    such as multi-collinearity that can destabilize regression-based
    models.
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    • One of the challenging tasks in analytics, especially in predictive


    analytics, is identifying the variables or features that may be
    associated to the response variable or the outcome variable that is
    of interest to the data scientists.

    • Organizations collect data on several variables, sometimes the


    number of variables can run into thousands (including derived
    variables such as ratios and interactions).
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    • For example, mobile service providers collect data on variables such


    as call duration, number of calls, numbers to which the calls are
    made, number of calls received, the device that was used to make
    the call, location (and mobile tower that the phone was attached
    to), time between calls, last recharge (in case of pre-paid mobile
    services), recharge amount, service plan (in case of post-paid
    connection), number of messages sent, number of messages
    received, apps downloaded, time spent on surfing internet, and so
    on.
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    • The number of variables collected and new variables generated may


    exceed several thousands.

    • Few of these variables are regulatory requirements as the part of


    the internal security and the mobile phone service providers are
    expected to collect and store. The idea behind collecting all these
    variables is to find answer to questions such as
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    • Which customer is likely to churn?


    • How to increase the revenue generated from a customer?
    • What is the customer lifetime value?
    • What is the best service plan for a customer?
    • What recommendations can be made to a customer?
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    • Finding answer to the aforementioned questions involves building


    predictive/prescriptive analytics
    • models. Model building involves identifying the variables among
    thousands of variables (in analytics
    • terminology this is called variable selection or feature selection) to
    build the model.
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    • Taking all the variables simultaneously to create a model can result


    in problems such as multi collinearity, which can destabilize the
    model and is also time consuming since most predictive analytics
    model development involves matrix operations such as matrix
    inverse calculation.
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    • So, the knowledge of how different variables are related to one


    another is important in building analytical models.

    • Correlation is a measure of the strength and direction of


    relationship that exists between two random variables and is
    measured using correlation coefficient.
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    • In others words, correlation is a measure of association between


    two variables.
    • Correlation can assist the data scientists to choose the variables for
    model building that is used for solving an analytics problem.
    • We will be discussing different types of correlation coefficients in
    this chapter depending on the scale of measurement of the
    variables involved.
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    • Correlation is only an association relationship and not a causal


    relationship.

    • Thus the user should be aware of the fact that two variables may
    have high correlation coefficient value, although there may not be
    any direct dependence between these variables.
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    • Pearson product moment correlation (in short Pearson correlation)


    is used for measuring the strength and direction of the linear
    relationship between two continuous random variables X and Y.
    • For example, consider two variables − the average call duration
    (variable Y) and the age (variable X).
    • We may like to know whether the average call duration is related to
    the age of the caller, that is, whether change in age is related to
    change in average call duration.
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    • It is also possible that there may not be any relationship between


    age and average call duration.
    • A simple approach for checking existence of association relationship
    is to draw a scatter plot.
    • Scatter plot may reveal if there exists any relationship between two
    variables.
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    • In Table 8.1 we have age of customer and average call duration


    (measured in seconds) from a sample data; the corresponding
    scatter plot is shown in Figure 8.1.
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    • In Figure 8.1, we can see that the average call duration (Y) decreases
    as the age of the customer (X) increases.
    • We can measure the strength of the linear association relationship
    using a numerical measure called correlation coefficient.
    • In the next section, we will be discussing mathematical equations
    for calculating Pearson product moment correlation coefficient.
    Correlation

    • Pearson product moment correlation is used when we are


    interested in finding linear relationship between two continuous
    random variables (that is, the variable should be either of ratio or
    interval scale).

    • When we try to measure how change in a variable (say Y) is related


    to changes in another variable (say X), one of the issues that we
    need to consider is the measurement scale and unit of
    measurement of the two variables.
    Correlation

    • In the example discussed in Table 8.1, the variable age is measured


    in years and the call duration is measured in seconds.

    • The range of two variables can be different, thus we need to


    standardize the variables which can be used for measuring the
    correlation between two variables.
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    (Example 8.1)
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