Business Statistics CS GUPTA BOOK PDF

Limitations/precautions of correlation:

1. Correlation does not indicate causation.
2. Pearson’s r measures linear relationship only; r=0 may still have non-linear relation.
3. Extreme values and mixed data can mislead correlation results.

(Any three points can be written.)

Limitations of statistics include:

1. It deals mainly with quantitative data; qualitative aspects need conversion.
2. Results depend on quality of data and method used.
3. Statistics can be misused to mislead if presented wrongly.

(Any three limitations can be written.)

Karl Pearson’s coefficient of correlation (r) measures the strength and direction of linear relationship between two variables.

Important points:

• r lies between -1 and +1.
• r > 0: positive correlation; r < 0: negative correlation.
• |r| close to 1 indicates strong correlation; |r| close to 0 indicates weak correlation.

Therefore, Pearson’s r is very useful for measuring linear association, but it should be interpreted carefully because correlation does not prove causation.