__ADVANCED BANK MANAGEMENT ( ABM) __

__Unit 14: Correlation and Regression__

Regression and correlation analyses show us how to determine both the nature and strength of the relationship between the two variables. Through this method we will learn to predict, with some accuracy, the value of the unknown variable based on past observation and other factors. Correlation analysis is the statistical tool to describe the degree to which one variable is linearly related to other. Correlation is a relationship or dependency that exists between two variables. If a correlation exists, it is said that the variables are correlated or there is a correlation between them. The linear correlation coefficient is the ratio between the covariance and the product of standard deviations of both variables. The linear correlation coefficient is denoted by the letter r.

The regression line is the line that best fits or represents the data on the scatter plot. Line of Regression of Y on X The regression line of y on x is used to estimate the values of y from x. The slope of the line is the quotient between the co-variance and variance of the variable X.

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