Significance of correlation

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    • Most of the variables show some kind of relationship like there is relationship between price and supply and income and expenditure. With the help of correlation we can find the degree of relationship between the variables.
    • When we know the degree of relationship we can know the value of one variable with the help of another variable.
    • Correlation analysis contributes to the understanding of the economic behavior, aids in locating the critically important variable on which others depend reveal to the economist and suggest to him the paths through which stabilizing forces may become effective.
    • The effect of correlation is to reduce the range of uncertainty the prediction based on correlation analysis is likely to be more valuable and near to reality.
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