What effect does a correlation coefficient of zero indicate?

Master Arizona State University's ECN221 Business Statistics Exam with our resources. Utilize flashcards and multiple-choice questions. Understand every concept with hints and explanations to excel in your exam!

A correlation coefficient of zero indicates that there is no correlation between the two variables being analyzed. This means that changes in one variable do not predict or have any relationship with changes in the other variable. The concept of correlation measures the strength and direction of a linear relationship between two variables.

When the correlation is zero, it implies that there is no linear relationship; the variables may change independently of one another. It’s essential to recognize that this does not rule out the possibility of a non-linear relationship existing between the two variables. However, in the context of linear correlation, a coefficient of zero clearly communicates the absence of a relationship.

In contrast, other correlations represent varying degrees of relationships, with strong positive or negative values indicating a direct relationship where one variable increases or decreases with respect to the other, and perfect correlation signifies a perfect linear relationship.

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