What is Correlation Matrix?

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Are you wondering what correlation matrix is? A lot of people might be looking for answers as to what this mathematical term is all about and how this can be of help in your business. In this article, you’ll be able to learn about it so read on.

 

Dependence, in the field of statistics, is defined as the statistical relationship between two sets of data or any two random variables. On the other hand, correlation refers to the statistical relationship which involves dependence.

 

Correlation matrix is simply defined as the measure of the relationship between 2 or more variables. There are several measurement scales used to illustrate data but the most common is the interval scales. Coefficients have a range of -1.00 to +1.00; - 1.00 is the perfect negative correlation while +1.00 is the perfect positive correlation. If you get a value of 0.00 in your computation, that is the lack of correlation.

 

Why do you need to know about this statistical equation? If you have a business, knowing this basic statistical data analysis will be a great help to improve your service.

 

If you are in the business of selling products, you definitely have stored data what product sells more and what product does not. Plotting the stored data in table form, you get to see variables in the form of measurement scales. You can analyze the data if you know how to interpret statistical measurement.

 

So, looking at your table, you can input the number of years you have been in the business and putting in data about customer preference on your products, you will be able to measure the linear relationship in terms of positive correlation. How do this apply to your business? The data only shows that your customers continue to patronize your products over the years.

 

Looking at another set of data, say plot in your new line of products. If you are seeing negative correlation data, you will be able to gauge how customers are responding to your new products. This will help you see how the new product is faring in the market so you can make adjustments on your marketing and selling approach.

 

Though you have the data, the computation aspect would still be difficult to achieve. Plotting the variables individually takes time, creating a collection of organized numerical data arranged in rows and columns is your correlation matrix. Seeing the real statistical data through the use of this matrix will greatly help you improve on your products to ensure business success.

 

It may seem daunting at first, but once you get the hang of it, correlation matrix will be as easy as counting 1-2-3.

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Cedric Loiselle has 855 articles online and 2 fans

For more information about correlation matrix and online derivative calculator visit our website mathfinance.cn.

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This article was published on 2011/12/02