Person Total wealth (‘000s of dollars) Y Age (Years) X A 280 36 B 450 72 C 250 48 D 320 51 E 470 80 F 250 40 G 330 55 H 430 72
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
Personal wealth tends to increase with age as older individuals have had more opportunities to earn and invest than younger individuals. The following data were obtained from a random sample of eight individuals and records their total wealth (Y) and their current age (X)
Person Total wealth (‘000s of dollars) Y Age (Years) X
A 280 36
B 450 72
C 250 48
D 320 51
E 470 80
F 250 40
G 330 55
H 430 72
A part of the output of a
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.954704
R Square 0.91146
Adjusted R Square 0.896703
Standard Error 28.98954
Observations 8
ANOVA
df SS MS F Significance F
Regression 1 51907.64 51907.64
Residual 6 5042.361 840.3936
Total 7 56950
Coefficients Standard Error t Stat P-value
Intercept 45.2159 39.8049
Age 5.3265 0.6777
questions:
a. State the estimated regression line and interpret the slope coefficient.
b. What is the estimated total personal wealth when a person is 50 years old?
c. What is the value of the coefficient of determination? Interpret it.
d. Test whether there is a significant relationship between wealth and age at the 10% significance level. Perform the test using the following six steps.
Step 1. Statement of the hypotheses
Step 2. Standardised test statistic
Step 3. Level of significance
Step 4. Decision Rule
Step 5. Calculation of test statistic
Step 6. Conclusion
Step by step
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