Reading 11- LOS B : Q2 presence, limitation, likely

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2.One major limitation of the correlation analysis of two random variables is when two variables are highly correlated, but no statistically significant relationship exists. This condition most likely indicates the presence of:

A)   spurious correlation.

B)   outliers.

C)   nonlinear relationships.

D)   parameter instability.

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The correct answer was A)

Spurious correlation occurs when the analysis erroneously indicates a linear relationship between two variables when none exists.