Partial correlation coefficients , Financial Management

In multiple correlation equations we are often interested in finding out how much of the variation in the dependent variable is explained by one independent variable if all the other independent variables are kept constant.

For example in the equation Y = a + b1 X1 + b2 X2 we may want to find out how much variation in Y is explained by X1 if X2 is kept constant. This is given by the partial coefficient of determination. Using our simplified subscripts the partial correlation coefficient is given by R12.3.

where,   R12.3 =  962_partial correlation coefficient.png

is the partial correlation coefficient between Y and X1 when X2 is kept constant. Note that here there are two subscripts 1 and 2 before the dot unlike the single subscript before the dot in the multiple correlation coefficient discussed earlier. In fact if r13 and r23 are zero R12.3 reduces to r12, the simple correlation coefficient between Y and X1.

Posted Date: 9/17/2012 2:10:39 AM | Location : United States







Related Discussions:- Partial correlation coefficients , Assignment Help, Ask Question on Partial correlation coefficients , Get Answer, Expert's Help, Partial correlation coefficients Discussions

Write discussion on Partial correlation coefficients
Your posts are moderated
Related Questions
Why do analysts calculate financial ratios? Ratios are comparative measures.  For the reason that the ratios show relative value, they permit financial analysts to compare inf

what is the meaning of market feasibility? What are its different types with their degree?

what is leverage

Explain how the premium and discount are determined while assets are PTM (priced-to-market). When would the law of one price prevail in international capital markets although if fo

Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.

Embedded Options  is a provision in the indenture that gives the issuer and/or the bondholder an option to take action against the other party.

Categorization of management risk: Once each event has been evaluated, and been classified as to its probability and impact, the next step is to categorise those events. To do

Futures Contract It is an obligation to purchase or sell an asset at an agreed-upon price on an exact future date. The buyer commits himself or herself to buy the asset, and th

Weighted Aggregates Index   In a weighted aggregates index, weights are assigned according to their significance and consequently the weighted index improves the accuracy of the

Degree of Operating Leverage A measure of the firm's operating leverage, which is calculated as the contribution margin distributed by income before taxes. A rigid with a high