Correlation coefficient (r)
Correlation coefficient measures the degree of association between two variables such as the cost and the activity level.r = nΣxy - Σx Σy [nΣx^{2} – (Σx)^{2} ] [nΣy^{2} - (Σy)^{2}]When the degree of association among the two variables is very close then it would be almost possible to plot the observation on a straight line and r will be almost equal to one.
-1≤ r ≤ 1If r= -1, then the two variables are said to be perfectly negatively correlatedIf r = +1, then the two variables are perfectly positively correlatedIf r = 0, then there is no correlation between the two variables.