Significance of Correlation

1. It helps determine the degree of correlation between the two variables in a single figure.
2. It makes understanding of economic behaviour easier and identifies critical variables that are significant. 
3. When two variables are correlated, the value of one variable can be estimated using the value of the other. This is performed with the regression coefficients.
4. In the business world, correlation helps in taking decisions. The correlation helps in making predictions which helps in reducing uncertainty. It is so because the predictions based on correlation are probably reliable and close to reality.

The previous statistical approaches (such as central tendency and dispersion) are limited to analysing a single variable or statistical analysis. This type of statistical analysis in which one variable is involved is known as Univariate Distribution. However, there are instances in real-world situations where distributions have two variables like data related to income and expenditure, prices and demand, height and weight, etc. The distribution with two variables is referred to as Bivariate Distribution. It is necessary to uncover relationships between two or more statistical series. Correlation is a statistical technique for determining the relationship between two variables.

According to L.R. Connor, “If two or more quantities vary in sympathy so that movements in one tend to be accompanied by corresponding movements in others, then they are said to be correlated.”

In the words of Croxton and Cowden, “When the relationship is of a quantitative nature, the appropriate statistical tool for discovering and measuring the relationship and expressing it in a brief formula is known as correlation.”

According to A.M. Tuttle, “Correlation is an analysis of covariation between two or more variables.”