Question

What is the difference between simple correlation and multiple correlations?

Thecorrelation is said to be simple when relationship between the two variables only is being studied whereas

Answer 1

Ans: Thecorrelation is said to be simple when relationship between the two variables only is being studied whereas in case of multiple correlation the relationship between the three or more variables is being studied simultaneously.

In simple correlation we take into account the effect of only one variable on the other variable because only two variables are there but in case of multiple correlation we study the effect of multiple variables together on the dependent variable.

For example if we want to study how yield of a bond is affected by its price then it implies Yield is dependent variable and price is independent variable;then it is case of simple correlation only because here we are studying the relationship between yield and price only.

But since yield of bond is olso dependent upon other factios like prevailing interest rate, time to maturity and price of bond. Soif we take into account all these three factors simultaneously and study the combined effect of these three variables on the yield of bond then it is a case of multiple correlation because inthis case allthe three variables effect is studied together.

Similarly if we take into account the relationship between the price and demand of a good only then it is simple correlation because only price and quantity demanded of a good are concerned.