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CMA Foundation · Fundamentals of Business Mathematics and Statistics · Correlation and Regression

For a sample, r = 0.45 and its probable error is 0.05. Applying the standard rule on probable error, what can be concluded?

The rule says correlation is significant if r is more than six times its probable error. Here six times 0.05 is 0.30, and r = 0.45 is greater than 0.30, so the correlation is regarded as significant and not due to chance.

  1. Ar is significant, as it exceeds 6 times the probable error (0.30)Correct
  2. Br is not significant, as it is less than 6 times the probable error (0.30)
  3. Cr is insignificant, as it exceeds 0.30
  4. DThere is no correlation, as r exceeds the probable error

Explanation

Six times PE = 6 × 0.05 = 0.30. Since r = 0.45 is greater than 0.30, the correlation is regarded as significant. The second option reverses the comparison, which is why it is wrong.

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