A friend of yours is analyzing the relationships among a large number of variables. He's decided...

A friend of yours is analyzing the relationships among a large number of variables. He's decided that the best strategy is to compute correlation coefficients among all of them and see which relationships appear to be significant. Advise him on issues he must consider when using the correlation coefficient to describe the relationships between variables.

Expert Solution

Please don't hesitate to give a "thumbs up" for the answer in case the answer has helped you

The following points should be taken care of while considering the correlation coefficient to describe the relationship between variables:

1. Check the type of the relation - is it linear, quadratic or any kind of non-linear. Linear correlation will only makes sense when the relation between the 2 variables is linear, otherwise correlation doesn't make sense

2. The correlation should be also followed up with a Significance test - to test whether the correlation itself is statistically siginficant or not

3. Check the magnitude of correlation - if they are close to 0 or if the scatter plot doesn't have a trend then no correlation exists. If it is close to 1 or -1 then its a strong correlation

4. Check the direction of correlation - If the correlation is negative then inverse relation exists. If it is positive then the 2 vairables will change in the same direction

5. Correlation doesn't imply causality - Very important. If X and Y are highly correlated, we shouldn't conclude that increasing Y causes X to increase - because casusality is not implied in correlation. A latent or lurking variable may be response for a "spurious" correlation.

orchestra answered 2 years ago

A friend of yours is analyzing an investment in a small peach orchard. He has estimated...

A friend of yours is analyzing an investment in a small peach orchard. He has estimated that the orchard will require an initial expenditure of $25,000 to prepare the soil, buy and plant the trees, and install new irrigation equipment. The trees won’t produce for the first 2 years, and will produce at only 1/2 and 3/4 of full production in years 3 and 4, respectively. Your friend estimates his net income will be negative in the first couple of...

A friend of yours is analyzing an investment in a small peach orchard. He has estimated...

A friend of yours is analyzing an investment in a small peach orchard. He has estimated that the orchard will require an initial expenditure of $25,000 to prepare the soil, buy and plant the trees, and install new irrigation equipment. The trees won’t produce for the first 2 years, and will produce at only 1/2 and 3/4 of full production in years 3 and 4, respectively. Your friend estimates his net income will be negative in the first couple of...

Q. Introduce the following three Natural resources contribution to GDP variables explain the possible relationships among...

Q. Introduce the following three Natural resources contribution to GDP variables explain the possible relationships among variables. 1. Forest Rents. 2. Minerals Rents. 3. Oil Rents.

Among the large number of applications for a national scholarship program, 20% arrive missing some part...

Among the large number of applications for a national scholarship program, 20% arrive missing some part of the required materials. Use an appropriate normal distribution to estimate the probability that, in a simple random sample of 60 applications, more than 15 of them are missing required materials.

A) Suppose you had a large number of variables which you believe might have some forecast...

A) Suppose you had a large number of variables which you believe might have some forecast information. How would you use these variables to forecast in an efficient way? B) How would you extend this procedure to allow for dynamic effects?

A) Suppose you had a large number of variables which you believe might have some forecast...

A) Suppose you had a large number of variables which you believe might have some forecast information. How would you use these variables to forecast in an efficient way? B) How would you extend this procedure to allow for dynamic effects?

Suppose you had a large number of variables which you believe might have some forecast information....

Suppose you had a large number of variables which you believe might have some forecast information. How would you use these variables to forecast in an efficient way? B) How would you extend this procedure to allow for dynamic effects?

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues:

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues: Costs per month R Materials 4 100 Labour 5 000 Production overheads 2 000 Selling and distribution overheads 1 000 Administration overheads 500 The above costs are based on producing and selling 1 200 pairs of curtains per month at a selling price of R15 each. 80%...

Mr. Bailey would like you to start by analyzing the Payroll Office expenses, and allocating the total expenses to each division. He has decided to use the number of payroll checks as the activity base for the allocation.

The following chart shows some basic data for the company:Hourly market rate for staff (the price the company would have to pay from an outsidecontractor for staff services)$100Average hourly cost rate for staff (the average price the company pays to its staff)$50Number of paychecks issued by Audit Division110Number of paychecks issued by Tax Division340Total expense for Payroll Office$31,500Amount of assets invested in Audit Division by BOR CPAs, Inc.$10,000,000Amount of assets invested in Tax Division by BOR CPAs, Inc.$5,000,000PayrollMr. Bailey would...

Question

A friend of yours is analyzing the relationships among a large number of variables. He's decided...

Solutions

Expert Solution

Related Solutions

A friend of yours is analyzing an investment in a small peach orchard. He has estimated...

A friend of yours is analyzing an investment in a small peach orchard. He has estimated...

Q. Introduce the following three Natural resources contribution to GDP variables explain the possible relationships among...

Among the large number of applications for a national scholarship program, 20% arrive missing some part...

A) Suppose you had a large number of variables which you believe might have some forecast...

A) Suppose you had a large number of variables which you believe might have some forecast...

Suppose you had a large number of variables which you believe might have some forecast information....

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues:

Mr. Bailey would like you to start by analyzing the Payroll Office expenses, and allocating the total expenses to each division. He has decided to use the number of payroll checks as the activity base for the allocation.