Finding Better Correlations in Your Data

Correlations, while in common use, are often ineffectively applied. Finding associations between variables have many applications. Not all data sets are relevant for a particular outcome. The best correlations provide an initial understanding of relationships to improve statistical models and business operations.

Benefits of using correlations include predictions, determinations, causation, and modeling techniques. They are statistical measurements that describe the associations of variables. Different correlations measure different types of strengths of association.

Understanding the Nuances of Relationships

It is important to understand that correlations are not absolute indicators. Finding a correlation by no means absolutely dictates that two variables must have a cause and effect relationship. For example, an observed relationship may be owed to a third variable yet to be discovered.

Correlation measurements are concerned with the degree of a relationship with respect to a single figure. Estimation of relative value is achieved through regression analysis. Correlation analysis improves the understanding of broader behavior and locates deterministic variables. In essence, correlation reduces uncertainty. It is a method of prediction that has a foundation in nature. The results of developing modern correlation methods are variable estimations that are closer to reality.

Three commonly used correlation measurements are Pearson’s Correlation Coefficient (PCC), Distance Correlation, and Maximal Information Coefficient (MIC). PCC is usually the first measurement taught. It measures the standard deviation between two vectors. Covariance is used to measure trending away from means and determine degrees of similarity. Distance correlation uses means as well, but measures the distances from all points. It provides a better illustration of non-linear dependencies. The MIC measures uncertainty in a probable distribution. It is concerned with predicting outcomes associated with events.

What might becoming apparent is the importance of how data is prepared. A flexible solution that supports a variety of applications is the best option. A jdbc connection can import data without customizing database codes. It works with any relational database regardless of the type of correlation.

Types of Correlation

Proper analysis and finding relationships go hand in hand. Prioritizing linear and non-linear correlation is essential. More specifically, two variables may exhibit a clear relationship even though their rate of change is not equally distributed. In such a data set, the resulting plot would not be a straight line.

Three types of correlations that are based upon the number of variables are:

• Simple correlation examines the relationship of two variables. Determining the principal variable is key.
• Partial correlation looks at two variables within a data set that consists of greater than two variables. A key assumption is that the other variable(s) are constant.
• Multiple correlations jointly examines two or more variables.

Visualization Vs. Numerical Representation

When there are more than two variables within a data set, it becomes less likely that linear correlation will be useful. Visualization helps understand the implications of multiple variables for a specific purpose. Scatter plots are useful visualizations for gauging these relationships. This can help weed out useless data. Numerical representations are better for specific relationships.

Different correlations methods will make their own assumptions. Each come with advantages and weakness. Proper application is key when determining statistical significance. For instance, obtaining a small coefficient for a large data set can indicate a significant statistical correlation.

Data Transformation

Data transformation uses statistical tools to improve correlations. The objective is proper statistical analysis. Sometimes, seemingly non-linear data sets will still benefit from a linear correlation. Data transformation can illuminate relationships between X and Y by associating a meaningful linear relationship. Mathematical functions are used to change (transform) the measurement scale of variables. This is done so as to optimize the linear correlation of the data set. While not a perfect fit, the residual plot is useful to ascertain the characteristics of random patterns and nonlinear relationships. This concept of imperfect linearity is greatly useful for real-world problems that don’t adhere to textbook models.

Final Thoughts

Improving upon correlations that benefit operations is often possible. Proper application is as important as discovering relationships. Objectives should include increasing efficiency and long-term potential. Greater insights become more operationally profound under carefully selected direction.