Correlation analysis is one of the strong business data analysis tools.
Surprisingly it requires ONLY FIVE SECONDS to get the result with Microsoft Excel.
“Correlation” means how much two data sets synchronize with each other.
One of the well-known examples is correlation between beer sales and temperature. When temperature goes up, the beer sales of the day also goes up. In such case, they are highly correlated.
In the data analysis, correlation coefficient is used, which shows some value between -1 and +1. If the coefficient is “1”, the two data sets are perfectly correlated in the same direction, while “-1” indicates they are correlated but in the opposite directions.
In the business world, the correlation indicates the strength of the two data/parameters. If the correlation is high (coefficient is higher than 0.7) between marketing spending and the number of the visitors to the showroom, it means you are using money wisely.
In this sense, correlation is an indicator of the effectiveness or ROI(Return On Investment).
Next time I will show how you can get the coefficient in 5 seconds!!!