Question

You are given the following two series on income and credit scores. Income FICO 39 625 27 600 57 710 31 595 34 610 50 840 38 726 62 710 43 635 49 560 (A) Find the covariance and the correlation coefficient. (B) Do credit scores increase, decrease, stay the same, with Income

Answer 1

Answer:

(A). Covariance= 267.7777, correlation = 0.281.

(B) there is slight increase in the credit score.

Explanation:

So, we are given the following data for Income and FICO:

39 = 625, 27 = 600, 57 = 710, 31 = 595, 34 = 610, 50 = 840, 38 = 726, 62 = 710, 43 = 635, 49 = 560.

The fastest way to find the covariance and correlation is making use of excel.

Fx = COVARIANCE.P(first row of income: last row of income, first row of FICO: last row of FICO).

With the formula above in Excel we will have the value of 267.7777 as our answer for covariance.

For correlation: we will make use of excel too by making use of the formula below:

Fx = CORREL( first row of FICO: last row of FICO, first row of income: last row of income).

(B). The more the income Increases, the more the credit score increases, although it is a slight Increament.