Title: Using scatter plots to assess correlation
Course: UGQuants (SSPS) > Section: Correlation and Regression

Using scatter plots to assess correlation

When we look at the results of our scatterplots, we can start to understand the relationships between two variables.  Typically we are interested in two pieces of information: how close the dots in the scatterplot resemble a straight line and the general appearance of any line that might emerge from those dots.

There are two key types of relationship that we might look for in scatterplots:

A positive relationship is found where the value on one axis tends to increase as the value on the other increases (i.e. where our 'cloud' of dots appears to rise from left to right).

A negative relationship is found where the value on one access tends to decrease as the value on the other increases (i.e. where our 'cloud' of dots appears to fall from left to right).

The following are good examples of scatterplots:

Source: http://web.anglia.ac.uk/numbers/graphsCharts.html

Figures b and c show us clear positive and negative relationships.

In graph a we see no obvious relationship with the variables as they represent a cloud of dots. We could likewise say that there is no obvious relationship between our variables in graphs d and e. In graph d, there is not enough variation on our dependent variable (variable 2) and in graph e, there is not enough variation on our independent variable (variable 1).

Graph f shows us a situation that we sometimes find: for some of our cases, there seems to be a relationship between variable 1 and variable 2. These can be seen in the shaded example at the top. For other cases in our dataset, however, there doesn’t appear to be a relationship between our two variables.