Karl Pearson’s Coefficient

In today’s world, numerous researches take place on various subjects. The data that is derived from this research is usually expressed in the form of statistics. We see statistics all the time. From sports to science, from weather reports to lab reports, most of the data is often portrayed through statistics. Statistics and data analysis are two important aspects that have gained importance over the years. Thus, if two different variables of two different statistical or analytical reports have any sort of relationship, Karl Pearson’s Coefficient of Correlation is used to measure and identify the relationship.

Definition of Karl Pearson’s

Karl Pearson’s Coefficient of Correlation is a mathematical approach in which the numerical expression is used to estimate or determine the range or magnitude and the direction of the relationship between two linearly related variables. Karl Pearson’s Coefficient is a quantitative method that is often used in statistics. It is also known as the Pearsonian Coefficient of Correlation, and it is a widely accepted and widely used method. To calculate the measurement of the relationship between two variables Karl Pearson’s Coefficient of Correlation formula is used.

How to calculate Karl Pearson’s Coefficient of Correlation?

Karl Pearson’s Coefficient of Correlation formula is used to obtain accurate results. The formula includes denoting the coefficient of correlation as ‘r’. The complete formula is:

R = (n (∑xy)- (∑x)(∑y))/(√ [n ∑x2-(∑x)2][n ∑y2– (∑y)2)

Where

R = Pearson Coefficient

n = number of the pairs of the stock

∑xy = sum of products of the paired stocks

∑x = sum of the x scores

∑y= sum of the y scores

∑x2 = sum of the squared x scores

∑y2 = sum of the squared y scores

Karl Pearson’s Coefficient of skewness

Karl Pearson’s Coefficient of Skewness method is another method that was made by Karl Pearson. This method is performed by using mean and mode, which tells that Karl Pearson’s Coefficient of skewness is calculated based on descriptive statistical methods.

Karl Pearson’s Coefficient of Skewness formula

There are two different ways of calculating skewness through using Karl Pearson’s Skewness formula. 

1-     Karl Pearson’s Skewness formula through the usage of mode

– (Mean−Mode)/ S.D

2-     Karl Pearson’s Skewness formula through the usage of the median

– 3(Mean–Median)/ S.D

Use of Karl Pearson’s Coefficient Correlation 

Karl Pearson’s Coefficient of Correlation has many uses in the practical field. The following is a list that states the application of Karl Pearson’s Coefficient of Correlation in the practical field.

1. Business Problems- The Karl Pearson coefficient of correlation method proves to be useful for banks. It helps a bank to identify or determine the correlation between the credit card delinquency rate of a card beholder and their income.

2. Input Data- Karl Pearson’s coefficient of correlation method is also used in the input of data. It can be used to input the data of the monthly income of each credit card customer and the delinquency rate of each credit card customer.

3. Business Benefit- Karl Pearson’s coefficient of correlation formula gives various benefits to a business. By using the above example, we can say that Karl Pearson’s coefficient of correlation formula also helps the credit card manager to decide an individual limit of credit by calculating the correlation coefficient between delinquency rates and income.

Apart from the above examples, analysis of correlation and the method of Karl Pearson correlation can also be applied to determine positive, and neutral correlations between a couple of different data points.