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Naresh K. Malhotra
Marketing Research-an applied orientation, 4th ed.
Product moment correlation
Product moment correlation is a statistic is used to summarize the strength of association
between two metric (interval or ratio) variables say X and Y. It is also known as Pearson
Correlation Co-efficient, Simple Correlation, Bivariate Correlation or simply Correlation Co-
efficient. It is proposed by Karl Pearson.
Ex: How strongly are sales related to advertising expenditures?
X i X Y i Y
n
r i 1
n n
i i
2 2
Formula: X X Y Y
i 1 i 1
Ex: Can the variation in market share be accounted for by the size of the
sales force?
Equation:
Y β0 β1 X
Bivariate Regression’s process
It is a nine-step process-
Plot the Scatter Diagram
ej
Bivariate Regression’s process
Y β 0 β X β X e
1 1 n n i
Bivariate Regression’s process
Step III In the most cases, β and β1 are unknown and are estimated from the sample
0
observations using the
predicted value of
equation:
Ŷi a bx i
; where
Yi
is the estimated or
. The value of a and b will be found by the following
formula: Ŷi
n n
Number One: X X Y Y X Y nXY
i i i i
b i 1
n
i 1
n
X X X nX
2 2 2
i i
i 1 i 1
Number Two:
a Y - bX
Step IV
Bivariate Regression’s process
Standardization is the process by which the raw data are transformed into new
variables that have a mean of 0 and a variance of 1. When the data are
standardized, the intercept assumes a value of 0. The term beta coefficient or beta
weight is used to denote the standardized regression coefficient is
B yx B xy rxy
Step V The statistical significance of the linear relationship between X and Y may be
tested by examining the hypotheses:
H 0 : β1 0
H1 : β1 0
The null hypothesis implies that there is no linear relationship between X and Y.
The alternative hypothesis is that there is a relationship-positive or negative
between X and Y. Typically, a two-tailed test is done. A t statistic with n – 2
degrees of freedom can be used where-
b
t
SE
b
Bivariate Regression’s process
Step V SE b denotes the standard deviation of b and is called the standard
error. When the calculated value of t is larger than the critical value,
then the null hypothesis is rejected means that there is a significant
linear relationship between dependent & independent variable.
H0 : R 0
2
Y Ŷ
2
i
Ŷ a bX 0
Step Latter
VIII
Step IX Latter
Multiple Regression
Multiple regression involves a single dependent variable and two or more
independent variables. Ex: Can variation in sales be explained in terms of
variation in advertising expenditures, prices and level of distribution? The
general form of the multiple regression model:
Y β0 β X β X β X β X e
1 1 2 2 3 3 k k
SS y
The multiple correlation coefficient, R, can also be viewed as the
simple correlation coefficient, r, between Y and . Several
characteristics of are- R
2
Ŷ
1.The coefficient of multiple determination,
2
cannot be less than
R
the highest Bivariate, r , of any individual independent variable
2
H :β β β β 0
The overall test can0 be1conducted
2 3
by using an F statistic kwhere-
2
SS reg k R k
F
SS res (n - k - 1) 1 - R 2 (n - k - 1)