How to Determine and Interpret Correlation Co-efficient in Excel

Correlation Co-efficient is one of the important and useful tool in determining the relationship between two data sets (or two variable). Correlation co-efficient is denoted by "r" and its value ranges from -1 to +1.

Formula to calculate correlation co-efficient is

If the value of "r" is -VE, then two variables are inversely proportional (i.e. increase in the value of one variable results in decrease in the other).

If the value of "r" is +VE, then two variables are directly proportional (i.e. increase in the value of one variable results in increase in the other).

If the value of "r" is 0, then two variables are not correlated.

Consider this example of Age vs Income. In Excel, Correlation Co-efficient is determined using either CORREL or PEARSON formula.

From the above table it is evident that Age and Income are positively correlated with a value of "r" equal to 0.9638.