The necessary precautions to be taken while interpreting the value of correlation coefficient are as follows:
1. Nonsense or Spurious Correlation: The value off correlation coefficient r does not indicate cause-effect relation or any other meaningful correlation between two variables. For example, if we compute the correlation coefficient between the number of doctors (X) in a government hospital and the number of patients (Y) died during the treatment in certain time period, than the value of r may be near to 1. But there cannot be meaningful relation between X and Y, because it cannot be said that as the number of doctor increases, the number of patients died during the treatment also increases.
This may happen due to other factors. So it is not meaningful correlation between X and Y. Thus, the interpretation based on only the value of r may be misleading. Hence, we should consider the assumption of cause-effect relation between the variables. We should be careful to interpret about the nature and closeness of correlation between the variables.
2. Sometimes due to the presence of other factors the value of (r) may be close to 1, though two variables are not correlated.
3. Lack of correlation : When the value of r is zero (0). We can merely say that there is no linear correlation or lack of linear correlation between two variables. There may be a non-linear correlation between the variables. Hence, when r = 0, it is not proper to say that there is no correlation between two variables.
4. If the correlation coefficient computed for the data which is related to a given region or class or given period, then its interpretation should be limited to that region or class or time period only, otherwise it will mislead.
