Business Problems Involving Correlation - Bivariate Analysis

In the last lecture, you learnt the concept of correlation and its interpretation. But it is also important to understand how correlation is used in the industry. Let’s see how correlation is used through a real example of stock market analysis.

There are two things that you would have noticed in the lecture:

1. The correlation matrix of stock prices of different countries gives a real sense of the relationship between many variables.

2. The correlated variables are grouped by similarities, and correlation can also be calculated for ‘groups of variables’. This is called ‘clustering’, which you will study in detail later in the next course, but the idea is to form a hierarchy of similar groups of variables.

Let’s take one example to learn how clustering helps in understanding customer behaviour of ordering food at restaurants.

In the next lecture, you will learn how to find the relationship between pairs of categorical variables and the relationship between categorical and continuous variables.