MBAQ-104: Quantitative Techniques – Unit 3

MBAQ-104: Quantitative Techniques – Unit 3

Objectives: understand the meaning of correlation; compute the correlation coefficient between two variables from sampleobservations; test for the significance of the correlation coefficient; identify confidence limits for the population correlation coefficient from the observed sample correlation coefficient & become aware of the concept of auto-correlation and its application in time series analysis.

Materials:
The relevant material is available here.

Questions:

1. What do you understand by the term correlation? Explain how the study of correlation helps in forecasting demand of a product.
2. Suggest five pairs of variables which you expect to be positively correlated.
3. Suggest five pairs of variables which you expect to be negatively correlated.
4. The following data pertains to length of service (in years) and. the annual income for a sample of ten employees of an industry:

Length of service in years (X)	Annual income in thousand rupees (Y)
6	14
8	17
9	15
10	18
11	16
12	22
14	26
16	25
18	30
20	34

5. Compute and plot the first five auto-correlations (i.e. up-to time lag 5 periods) for the time series given below :

t	1	2	3	4	5	6	7	8	9	10
dt	13	8	15	4	4	12	11	7	14	12