Correlation is usually defined as a measure of the linear relationship between two quantitative variables (e.g., height and weight). Often a slightly looser definition is used, whereby correlation simply means that there is some type of relationship between two variables. This post will define positive and negative correlation, provide some examples of correlation, explain how to measure correlation and discuss some pitfalls regarding correlation.
Importance of Correlation:
(i) Correlation helps us in determining the degree of relationship between variables. It enables us to make our decision for the future course of actions.
(ii) Correlation analysis helps us in understanding the nature and degree of relationship which can be used for future planning and forecasting.
(iii) Forecasting without any prior correlation analysis may prove to be defective, less reliable and more uncertain. If it is based upon the result of correlation analysis, it will be more reliable.
