Differentiate between correlation analysis and covariance an

Differentiate between correlation analysis and covariance analysis of data with the help of a suitable example not given in the slides

Solution

Correlation Analysis and Covariance analysis both describe the degree of similarity between two variables or items or things whatever it may be.

When we say 2items are correlated it means the degree of change in one item is closely similar to the degree of change in the other item.The effect might be positive and also negative

For example considering Indian Stock market, if there is 10 gain in Sensex,then there might be 10 or nearly 10 gain in nifty also.both relate proportionally

There might be negative correlation between Sensex and Gold in the same Stock Exchange example

Now coming to Covariance,it also represents how two variables or items tend to vary which can be positive or negative.positive covariance indicates that higher than average values of one variable tend to be paired with higher than average values of the other variable

Correlation is the standardised form of covariance.correlation has a range between -1 and 1 whereas Covariance values range from negative infinity to positive infinity

Covariance and Correlation between two variables x and y is calculated as

Covariance=xyavg-(xavg * yavg)

Correlation=( Covariance of x and y)/(SD of x * SD of y)

where SD means Standard Deviation