SOAN 3120 Lecture Notes - Lecture 5: Standard Deviation, Dependent And Independent Variables, Normal Distribution

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The correlation r measures the strength and direction of the linear relationship between two variables x and y sx and sy are the standard deviations of x and y o. If these values are not provided, we can calculate them ourselves. Subtracting the mean and dividing by the standard deviation gives the standardized scores for x and y for each observation i. The product will be positive when both x and y are above or below their means o. The product is negative when one variable is above its mean and the other below. The sigma sign ( ) directs us to add the products up over all observations. Since x and y are treated the same way, the correlation does not depend on one being identified the response and the other on the explanatory. A correlation of -1 signifies a perfect negative linear relationship all points line up exactly from upper left to lower right.

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