Reading 11- LOS F (Part 2): Q4 class, 2008, performing, address, style

cfaedu

4. performing the correlation test on Grey and Jars, Standish would most appropriately address the issue of:

A)   spurious correlation but not the issue of outliers.

B)   spurious correlation and the issue of outliers.

C)   outliers but not the issue of spurious correlation.

D)   neither outliers nor correlation.

cfaedu

The correct answer was B)

Both these issues are important in performing correlation analysis. A single outlier observation can change the correlation coefficient from significant to not significant and even from negative (positive) to positive (negative). Even if the correlation coefficient is significant, the researcher would want to make sure there is a reason for a relationship and that the correlation is not caused by chance.