Solution Sheet
1. Find Karl Pearson’s coefficient of correlation from the following index numbers and interpret
it.
Wages 100 101 103 102 104 99
Cost of Living 98 99 99 97 95 90
Solution: The coefficient of correlation can be derived using the following formula-
∑( ̅) ( ̅)
√∑( ̅ ) √∑( ̅)
Here, x=cost of living, and y=wages
Therefore, the following calculation is required to derive the coefficient of correlation.
Cost of Wages (y) ( ̅) ( ̅) ( ̅) ( ̅) ( ̅ )( ̅)
Living (x)
98 100 1.67 2.7889 -1.50 2.25 -2.505
99 101 2.67 7.1289 -0.50 0.25 -1.335
99 103 2.67 7.1289 1.50 2.25 4.005
97 102 0.67 0.4489 0.50 0.25 0.335
95 104 -1.33 1.7689 2.50 6.25 -3.325
90 99 -6.55 42.9025 -2.50 6.25 16.375
∑ ∑ ∑( ̅) ∑( ̅) ∑( ̅) ∑( ̅) ∑( ̅ )( ̅)
̅ ̅
∑( ̅) ( ̅)
√∑( ̅ ) √∑( ̅)
Correlations
√ √
wage cost
wage Pearson Correlation 1 .403
Sig. (2-tailed) .428
N 6 6
cost Pearson Correlation .403 1
Sig. (2-tailed) .428
N 6 6
Regression: Y on X,
By solving the following two equations, the parameters a and b can be derived as least squared
method.
∑ ∑ ( )
∑ ∑ ∑ ( )
Therefore, the following calculation is required to derive the parameters to be estimated.
Cost of Wages (x)
Living (y)
98 100 10,000 9800
99 101 10,201 9999
99 103 10,609 10,197
97 102 10,404 9894
95 104 10,816 9880
90 99 9801 8910
∑ ∑ ∑ ∑
Therefore, the equations would be the followings:
( )
( )
By multiplying equation (1) by 609 and equation (2) by 6, I get the followings:
Now putting the value of in equation (1) I get,
( )
Therefore, the regression equation would be
a
Coefficients
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 20.933 85.517 .245 .819
wage .743 .842 .403 .882 .428
a. Dependent Variable: cost
ANOVAa
Model Sum of Squares df Mean Square F Sig.
b
1 Regression 9.657 1 9.657 .778 .428
Residual 49.676 4 12.419
Total 59.333 5
a. Dependent Variable: cost
b. Predictors: (Constant), wage
Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
a
1 .403 .163 -.047 3.524
a. Predictors: (Constant), wage
Regression: Y on X,
By solving the following two equations, the parameters a and b can be derived as least squared
method.
∑ ∑ ( )
∑ ∑ ∑ ( )
Therefore, the following calculation is required to derive the parameters to be estimated.
Cost of Wages (y)
Living (x)
98 100 9604 9800
99 101 9801 9999
99 103 9801 10,197
97 102 9409 9894
95 104 9025 9880
90 99 8100 8910
∑ ∑ ∑ ∑
Therefore, the equations would be the followings:
( )
( )
By multiplying equation (1) by 578 and equation (2) by 6 I get the followings:
Now putting the value of in equation (1) I get,
( )
Therefore, the regression equation would be
a
Coefficients
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 80.393 23.948 3.357 .028
cost .219 .248 .403 .882 .428
a. Dependent Variable: wage
a
ANOVA
Model Sum of Squares df Mean Square F Sig.
b
1 Regression 2.848 1 2.848 .778 .428
Residual 14.652 4 3.663
Total 17.500 5
a. Dependent Variable: wage
b. Predictors: (Constant), cost
Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
a
1 .403 .163 -.047 1.914
a. Predictors: (Constant), cost
2. From the following data, calculate coefficient of correlation between the percentage of yield
on securities and wholesale price indices for certain years::
Year 2002 2003 2004 2005 2006 2007
% Yield on securities 5.0 5.1 5.2 4.9 4.8 5.3
Index No. of wholesale prices 140 138 126 132 140 135
Solution: The coefficient of correlation can be derived using the following formula-
∑( ̅) ( ̅)
√∑( ̅ ) √∑( ̅)
Here, x=% yield on securities, and y=Index no. of wholesale prices
Therefore, the following calculation is required to derive the coefficient of correlation.
x y ( ̅) ( ̅) ( ̅) ( ̅) ( ̅ )( ̅)
5.0 140 -0.05 0.0025 4.83 23.3289 -0.2415
5.1 138 0.05 0.0025 2.83 8.0089 0.1415
5.2 126 0.15 0.0225 -9.17 84.0889 -1.3755
4.9 132 -0.15 0.0225 -3.17 10.0489 0.4755
4.8 140 -0.25 0.0625 4.83 23.3289 -1.2075
5.3 135 0.25 0.0625 -0.17 0.0289 -0.0425
∑ ∑ ∑( ̅) ∑( ̅) ∑( ̅) ∑( ∑( ̅ )( ̅)
̅) 148.8334
̅ ̅
∑( ̅) ( ̅)
√∑( ̅ ) √∑( ̅)
√ √