The correlation coefficient, r, tells us about the strength and direction of the linear relationship between x and y. However, the reliability of the linear model also depends on how many observed data points are in the sample. We need to look at both the value of the correlation coefficient r and the sample size n, together.

We perform a hypothesis test of the “significance of the correlation coefficient” to decide whether the linear relationship in the sample data is strong enough to use to model the relationship in the population.

The sample data are used to compute r, the correlation coefficient for the sample. If we had data for the entire population, we could find the population correlation coefficient. But because we have only have sample data, we cannot calculate the population correlation coefficient. The sample correlation coefficient, r, is our estimate of the unknown population correlation coefficient.

• The symbol for the population correlation coefficient is ρ, the Greek letter “rho.”
• ρ = population correlation coefficient (unknown)
• r = sample correlation coefficient (known; calculated from sample data)

The hypothesis test lets us decide whether the value of the population correlation coefficient ρ is “close to zero” or “significantly different from zero”. We decide this based on the sample correlation coefficient r and the sample size n.

If the test concludes that the correlation coefficient is significantly different from zero, we say that the correlation coefficient is “significant.”
Conclusion: There is sufficient evidence to conclude that there is a significant linear relationship between x and y because the correlation coefficient is significantly different from zero. What the conclusion means: There is a significant linear relationship between x and y. We can use the regression line to model the linear relationship between x and y in the population.

If the test concludes that the correlation coefficient is not significantly different from zero (it is close to zero), we say that correlation coefficient is “not significant.”

Conclusion: “There is insufficient evidence to conclude that there is a significant linear relationship between x and y because the correlation coefficient is not significantly different from zero.” What the conclusion means: There is not a significant linear relationship between x and y. Therefore, we CANNOT use the regression line to model a linear relationship between x and y in the population.

Note

• If r is significant and the scatter plot shows a linear trend, the line can be used to predict the value of y for values of x that are within the domain of observed x values.
• If r is not significant OR if the scatter plot does not show a linear trend, the line should not be used for prediction.
• If r is significant and if the scatter plot shows a linear trend, the line may NOT be appropriate or reliable for prediction OUTSIDE the domain of observed x values in the data.

Performing the Hypothesis Test

• Null Hypothesis: H₀: ρ = 0
• Alternate Hypothesis: H_a: ρ ≠ 0

What the Hypotheses Mean in Words

• Null Hypothesis H₀: The population correlation coefficient IS NOT significantly different from zero. There IS NOT a significant linear relationship(correlation) between x and y in the population.
• Alternate Hypothesis H_a: The population correlation coefficient IS significantly DIFFERENT FROM zero. There IS A SIGNIFICANT LINEAR RELATIONSHIP (correlation) between x and y in the population.

Drawing a Conclusion

There are two methods of making the decision. The two methods are equivalent and give the same result.

• Method 1: Using the p-value
• Method 2: Using a table of critical values

In this chapter of this textbook, we will always use a significance level of 5%, α = 0.05

Note

Using the p-value method, you could choose any appropriate significance level you want; you are not limited to using α = 0.05. But the table of critical values provided in this textbook assumes that we are using a significance level of 5%, α = 0.05. (If we wanted to use a different significance level than 5% with the critical value method, we would need different tables of critical values that are not provided in this textbook.)

Method 1: Using a p-value to make a decision

To calculate the p-value in Excel:

1. Under Data, select Data Analysis to open the Analysis Toolpak.  (Instructions to load the Analysis Toolpak add-in). 
2. Select Regression from the menu, which will pop open this window.  Input the Y Range and the X Range and select where the Summary Output will populate under Output Options.

2. Click OK.  The Summary Output will show more than you need, but you are interested in the p-value associated with the X Variable.

or if using TI83/84, to calculate the p-value using LinRegTTEST:

• On the LinRegTTEST input screen, on the line prompt for β or ρ, highlight “≠ 0”
• The output screen shows the p-value on the line that reads “p =”.

Note that most computer statistical software can calculate the p-value.

If the p-value is less than the significance level (α = 0.05)

• Decision: Reject the null hypothesis.
• Conclusion: “There is sufficient evidence to conclude that there is a significant linear relationship between x and y because the correlation coefficient is significantly different from zero.”

If the p-value is NOT less than the significance level (α = 0.05)

• Decision: DO NOT REJECT the null hypothesis.
• Conclusion: “There is insufficient evidence to conclude that there is a significant linear relationship between x and y because the correlation coefficient is NOT significantly different from zero.”

Calculation Notes:

You will use technology to calculate the p-value. The following describes the calculations to compute the test statistics and the p-value:

• The p-value is calculated using a t-distribution with n – 2 degrees of freedom.
• The formula for the test statistic is [latex]\displaystyle{t}=\frac{{{r}\sqrt{{{n}-{2}}}}}{\sqrt{{{1}-{r}^{{2}}}}}[/latex]. The value of the test statistic, t, is shown in the computer or calculator output along with the p-value. The test statistic t has the same sign as the correlation coefficient r.
• The p-value is the combined area in both tails.

On the TI 83/84, an alternative way to calculate the p-value given by LinRegTTest is the command 2*tcdf(abs(t),10^99, n-2) in 2nd DISTR.

Method 2: Using a table of Critical Values to make a decision

The 95% Critical Values of the Sample Correlation Coefficient Table can be used to give you a good idea of whether the computed value of is significant or not. Compare r to the appropriate critical value in the table. If r is not between the positive and negative critical values, then the correlation coefficient is significant. If r is significant, then you may want to use the line for prediction.

Assumptions in Testing the Significance of the Correlation Coefficient

Testing the significance of the correlation coefficient requires that certain assumptions about the data are satisfied. The premise of this test is that the data are a sample of observed points taken from a larger population. We have not examined the entire population because it is not possible or feasible to do so. We are examining the sample to draw a conclusion about whether the linear relationship that we see between x and y in the sample data provides strong enough evidence so that we can conclude that there is a linear relationship between x and y in the population.

The regression line equation that we calculate from the sample data gives the best-fit line for our particular sample. We want to use this best-fit line for the sample as an estimate of the best-fit line for the population. Examining the scatterplot and testing the significance of the correlation coefficient helps us determine if it is appropriate to do this.

Concept Review

Linear regression is a procedure for fitting a straight line of the form [latex]\displaystyle\hat{{y}}={a}+{b}{x}[/latex] to data. The conditions for regression are:

• Linear: In the population, there is a linear relationship that models the average value of y for different values of x.
• Independent: The residuals are assumed to be independent.
• Normal: The y values are distributed normally for any value of x.
• Equal variance: The standard deviation of the y values is equal for each x value.
• Random: The data are produced from a well-designed random sample or randomized experiment.

The slope b and intercept a of the least-squares line estimate the slope β and intercept α of the population (true) regression line. To estimate the population standard deviation of y, σ, use the standard deviation of the residuals, s.

[latex]\displaystyle{s}=\sqrt{{\frac{{{S}{S}{E}}}{{{n}-{2}}}}}[/latex] The variable ρ (rho) is the population correlation coefficient.

To test the null hypothesis H₀: ρ = hypothesized value, use a linear regression t-test. The most common null hypothesis is H₀: ρ = 0 which indicates there is no linear relationship between x and y in the population.

The TI-83, 83+, 84, 84+ calculator function LinRegTTest can perform this test (STATS TESTS LinRegTTest).

Formula Review

Least Squares Line or Line of Best Fit: [latex]\displaystyle\hat{{y}}={a}+{b}{x}[/latex]

where a = y-intercept, b = slope

Standard deviation of the residuals:

[latex]\displaystyle{s}=\sqrt{{\frac{{{S}{S}{E}}}{{{n}-{2}}}}}[/latex]

where

SSE = sum of squared errors

n = the number of data points