# The answer to Correlation Analysis

A. How is correlation analysis used in a business decision?

b. How can correlation analysis be misused to explain cause and effect relationship?

c. How is coefficient of determination used to make decisions?

d. What is the standard error of estimate? Describe with an example.

e. What are the coefficients of the linear regression model and what do they mean?

f. What are the various statistics reported in a regression output?

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#### Solution Preview

a. How is correlation analysis used in a business decision?

Correlation analysis is the statistical tool that we can use to describe the degree to which one variable is linearly related to another. Frequently, correlation analysis is used in conjunction with regression analysis to measure how well the least squares line fits the data . Correlation analysis can also be used by itself, however, to measure the degree of association between two variables in a business environment.

b. How can correlation analysis be misused to explain cause and effect relationship?

It might be that the two variables under observation might not have any cause or effect relationship at all between them. They might just be a collection of data of two totally unrelated variables. A mathematical correlation performed between them might not ...

#### Solution Summary

The solution looks at correlation analysis. How coefficient of determination is used to make decisions is discussed.