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CMA Intermediate · Financial Management and Business Data Analytics · Data Analysis and Modelling

A Pune retailer finds that the correlation coefficient between monthly advertising spend and monthly sales is +0.9. Which statement is the correct interpretation?

A correlation of +0.9 shows a strong positive linear relationship: advertising spend and sales tend to rise and fall together. It does not prove that advertising causes the sales change, nor does it mean 90 percent of months show increases.

  1. AAdvertising spend and sales tend to move in the same direction, and the relationship is strongCorrect
  2. BAdvertising spend causes 90% of the change in sales
  3. CSales fall when advertising spend rises
  4. D90% of the months show an increase in sales

Explanation

A coefficient of +0.9 is close to +1, so the two variables move together in the same direction with a strong linear association. Correlation does not prove causation, so the second option is wrong. A negative direction would need a negative sign. The coefficient is also not a percentage of months.

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