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# Correlation & Regression Analysis

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Sample Number Assets (\$ millions) Return (%)
1 AARP 622.2 10.8
2 Babson 160.4 11.3
3 Compass 275.7 11.4
4 Galaxy 433.2 9.1
5 Keystone 437.9 9.2
6 MFS Bond A 494.5 11.6
7 Nichols 158.3 9.5
8 T Rowe 681 8.2
9 Thompston 241.3 6.8

The table above contains data from 9 mutual funds -- total assets held by the fund and last year's return on the investment of the assets (cash).

(1) Construct a scatter diagram -- I have to be sure I choose the correct dependent and independent variable. Think about these questions: Which variable influences the other? What is the direction of the relationship? Do assets influence the return or does the return influence the assets? What I choose as the "causing" variable will be X, what I choose as the variable being "caused" or influenced will be Y. Then I must discuss my diagram.

(2) Compute the coefficients of correlation and determination and discuss what they mean.

(3) Test the signficance of the sample correlation computed in #2.

(4) Develop a regression equation. What return should I predict for \$400M in assets? Is the regression equation I developed meaningful? Why or why not?