CH23 1

Business Research Methods
William G. Zikmund
Chapter 23 Bivariate Analysis: Measures of Associations
Copyright 2000 by Harcourt, Inc.
All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.
Measures of association
A general term that refers to a number of bivariate statistical techniques used to measure the strength of a relationship between two variables.
Copyright 2000 by Harcourt, Inc. All rights reserved.
RELATIONSHIPS AMONG VARIABLES

CORRELATION ANALYSIS BIVARIATE REGRESSION ANALYSIS
Type of Measurement
Measure of Association
Interval and Ratio Scales
Correlation Coefficient Bivariate Regression
Type of Measurement
Ordinal Scales
Chi-square Rank Correlation
Type of Measurement
Nominal
Chi-Square Phi Coefficient Contingency Coefficient
Correlation coefficient
A statistical measure of the covariation or association between two variables. Are dollar sales associated with advertising dollar expenditures?
The Correlation coefficient for two variables, X and Y is
rxy
Correlation coefficient
r r ranges from +1 to -1 r = +1 a perfect positive linear relationship r = -1 a perfect negative linear relationship r = 0 indicates no correlation
Simple Correlation Coefficient
rxy ryx
X X Y Y Xi X Yi Y
i i 2
Simple Correlation Coefficient
rxy ryx
xy
2 x 2 y
Simple Correlation Coefficient -alternative method

= Variance of X
2 x
2 y
= Variance of Y
xy = Covariance of X and Y
CORRELATION PATTERNS
NO CORRELATION
X
PERFECT NEGATIVE CORRELATION r= -1.0
A HIGH POSITIVE CORRELATION r = +.98
X
Calculation of r
6.3389 17 .837 5.589

.635
6.3389 99.712
Coefficient of Determination
Explained variance r Total Variance

2
CORRELATION DOES NOT MEAN CAUSATION

high correlation roosters crow and the rising of the sun rooster does not cause the sun to rise teachers salaries and the consumption of liquor co-vary because they are both influenced by a third variable
Correlation matrix
The standard form for reporting correlation results.
CORRELATION MATRIX
Var1 Var1 Var2 Var3 1.0 0.45 0.31 Var2 0.45 1.0 0.10 Var3 0.31 0.10 1.0
Walkups First Laws of Statistics

Law No. 1 Everything correlates with everything, especially when the same individual defines the variables to be correlated. Law No. 2 It wont help very much to find a good correlation between the variable you are interested in and some other variable that you dont understand any better.
Walkups First Laws of Statistics
Law No. 3 Unless you can think of a logical reason why two variables should be connected as cause and effect, it doesnt help much to find a correlation between them. In Columbus, Ohio, the mean monthly rainfall correlates very nicely with the number of letters in the names of the months!
REGRESSION
DICTIONARY DEFINITION GOING OR MOVING BACKWARD
Going back to previous conditions Tall mens sons
BIVARIATE REGRESSION
A MEASURE OF LINEAR ASSOCIATION THAT INVESTIGATES A STRAIGHT LINE RELATIONSHIP USEFUL IN FORECASTING
Bivariate linear regression

A measure of linear association that investigates a straight-line relationship Y = a + bX where Y is the dependent variable X is the independent variable a and b are two constants to be estimated
Y intercept
a An intercepted segment of a line The point at which a regression line intercepts the Y-axis
Slope
B The inclination of a regression line as compared to a base line Rise over run D - notation for a change in
160
150 140 130 120 110 100 90
Scatter Diagram and Eyeball Forecast
My line Your line
80
70
80
90
100
110
120
130
140
150
160
170
180
190
X
REGRESSION LINE AND SLOPE

Y
130 120 110 100 90
X a Y b
80
DX
80 90 100 110
DY
120
130
140
150
160
170
180
190
X
160
150 140 130 120 110 100 90
Y hat for Dealer 3
Least-Squares Regression Line
Actual Y for Dealer 7
Y hat for Dealer 7
80
Actual Y for Dealer 3
70
80
90
100
110
120
130
140
150
160
170
180
190
X
Scatter Diagram of Explained and Unexplained Variation

Y
130
Deviation not explained
120 110 100 90

Total deviation
{}
140 150
Deviation explained by the regression
80
80
90
100
110
120
130
160
170
180
190
X
The least-square method

uses the criterion of attempting to make the least amount of total error in prediction of Y from X. More technically, the procedure used in the least-squares method generates a straight line that minimizes the sum of squared deviations of the actual values from this predicted regression line.
The least-square method

A relatively simple mathematical technique that ensures that the straight line will most closely represent the relationship between X and Y.
Regression - least-square method
e is minimum
i 1 2 i
ei
= Yi - Y i
(The residual)
Yi = actual value of the dependent variable = estimated value of the dependent variable (Y hat) Y i
n = number of observations
i = number of the observation
The logic behind the leastsquares technique

No straight line can completely represent every dot in the scatter diagram There will be a discrepancy between most of the actual scores (each dot) and the predicted score Uses the criterion of attempting to make the least amount of total error in prediction of Y from X
Bivariate Regression
a Y bX
Bivariate Regression
n XY X Y n X
2
b = estimated slope of the line (the regression coefficient)
= estimated intercept of the y axis
Y = dependent variable
Y = mean of the dependent variable
X = independent variable X = mean of the independent variable
= number of observations
15193,345 2,806 ,875 b 15245,759 3,515,625

2,900 ,175 2,806 ,875 3,686 ,385 3,515,625 93,300 .54638 170,760
99 .8 .54638 125 a
99 .8 68 .3 31 .5
99 .8 .54638 125 a
99 .8 68 .3 31 .5
31 .5 .546 X Y
31 .5 .546 89
31 .5 48 .6 80 .1
31 .5 .546 X Y
31 .5 .546 89
31 .5 48 .6 80 .1
Dealer 7 (Actual Y value 129) 31 .5 .546 165 Y

7
121 .6
Dealer 3 (Actual Y value 80 ) 31 .5 .546 95 Y

3
83 .4
ei Y9 Y9 97 96 .5 0 .5
Dealer 7 (Actual Y value 129) 31 .5 .546 165 Y

7
121 .6
Dealer 3 (Actual Y value 80 ) 31 .5 .546 95 Y

3
83 .4
ei Y9 Y9 97 96 .5 0 .5
Y9 31 .5 .546 119
F-test (regression)
A procedure to determine whether there is more variability explained by the regression or unexplained by the regression. Analysis of variance summary table
Total deviation can be partitioned into two parts

Total deviation equals Deviation explained by the regression plus Deviation unexplained by the regression
We are always acting on what has just finished happening. It happened at least 1/30th of a second ago.We think were in the present, but we arent. The present . we know is only a movie of the past. Tom Wolfe in The Electric Kool-Aid Acid Test
PARTITIONING THE VARIANCE
Y Y Y i
=
Yi Y i
Total deviation
Deviation explained by the regression
Deviation unexplained by + the regression (Residual error)
Y = Mean of the total group = Value predicted with regression equation Y Yi = Actual value
Y Y
i
Y i
Total variation explained
Explained = variation
Unexplained + variation (residual)
SUM OF SQUARES
SSt SSr SSe

Coefficient of Determination - r2
the proportion of variance in Y that is explained by X (or vice versa) A measure obtained by squaring the correlation coefficient; that proportion of the total variance of a variable that is accounted for by knowing the value of another variable.
Coefficient of Determination - r2
SSr SSe r 1 SSt SSt

2
Source of variation
EXPLAINED BY REGRESSION DEGREES OF FREEDOM
k-1 where k= number of estimated constants (variables)
SUM OF SQUARES
SSr
MEAN SQUARED
SSr/k-1
Source of variation
UNEXPLAINED BY REGRESSION DEGREES OF FREEDOM
n-k where n=number of observations
SUM OF SQUARES
SSe
MEAN SQUARED
SSe/n-k
r2 in the example
3,398 .49 r .875 3,882 .4

2
MULTIPLE REGRESSION
EXTENSION OF BIVARIATE REGRESSION MULTIDIMENSIONAL WHEN THREE OR MORE VARIABLES ARE INVOLVED SIMULTANEOUSLY INVESTIGATES THE EFFECT OF TWO OR MORE VARIABLES ON A SINGLE DEPENDENT VARIABLE DISCUSSED IN CHAPTER 24

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Business Research Methods

Chapter 23 Bivariate Analysis: Measures of Associations

Copyright 2000 by Harcourt, Inc.

Copyright 2000 by Harcourt, Inc. All rights reserved.

RELATIONSHIPS AMONG VARIABLES

Copyright 2000 by Harcourt, Inc. All rights reserved.

Interval and Ratio Scales

Correlation Coefficient Bivariate Regression

Copyright 2000 by Harcourt, Inc. All rights reserved.

Chi-square Rank Correlation

Copyright 2000 by Harcourt, Inc. All rights reserved.

Chi-Square Phi Coefficient Contingency Coefficient

Copyright 2000 by Harcourt, Inc. All rights reserved.

Copyright 2000 by Harcourt, Inc. All rights reserved.

The Correlation coefficient for two variables, X and Y is

Copyright 2000 by Harcourt, Inc. All rights reserved.

Copyright 2000 by Harcourt, Inc. All rights reserved.

Simple Correlation Coefficient

Simple Correlation Coefficient

Copyright 2000 by Harcourt, Inc. All rights reserved.

Simple Correlation Coefficient -alternative method

Copyright 2000 by Harcourt, Inc. All rights reserved.

PERFECT NEGATIVE CORRELATION r= -1.0

Copyright 2000 by Harcourt, Inc. All rights reserved.

A HIGH POSITIVE CORRELATION r = +.98

6.3389 17 .837 5.589

Copyright 2000 by Harcourt, Inc. All rights reserved.

Explained variance r Total Variance

CORRELATION DOES NOT MEAN CAUSATION

Copyright 2000 by Harcourt, Inc. All rights reserved.

Copyright 2000 by Harcourt, Inc. All rights reserved.

Walkups First Laws of Statistics

Walkups First Laws of Statistics

Going back to previous conditions Tall mens sons

Copyright 2000 by Harcourt, Inc. All rights reserved.

Copyright 2000 by Harcourt, Inc. All rights reserved.

Bivariate linear regression

Copyright 2000 by Harcourt, Inc. All rights reserved.

Copyright 2000 by Harcourt, Inc. All rights reserved.

Scatter Diagram and Eyeball Forecast

My line Your line

Copyright 2000 by Harcourt, Inc. All rights reserved.

REGRESSION LINE AND SLOPE

130 120 110 100 90

Copyright 2000 by Harcourt, Inc. All rights reserved.

Least-Squares Regression Line

Actual Y for Dealer 7

Y hat for Dealer 7

Actual Y for Dealer 3

Copyright 2000 by Harcourt, Inc. All rights reserved.

Scatter Diagram of Explained and Unexplained Variation

120 110 100 90

Deviation explained by the regression

Copyright 2000 by Harcourt, Inc. All rights reserved.

The least-square method

Copyright 2000 by Harcourt, Inc. All rights reserved.

The least-square method

Copyright 2000 by Harcourt, Inc. All rights reserved.

Regression - least-square method

Copyright 2000 by Harcourt, Inc. All rights reserved.

i = number of the observation

Copyright 2000 by Harcourt, Inc. All rights reserved.