The Limits of Correlation Suppose a consumer-electronics Web site does a survey and finds that the speed of Internet connectivity is highly correlated with the number of purchases. For example, those with faster connections may have more disposable income than other users and are therefore more likely to purchase. Or, alternatively, we might suspect that those users with faster connections are more likely to be techies and therefore more likely to purchase at an electronics site. This truism is often repeated in research circles, but it is easy to forget, especially when the correlations are hidden in much more complicated models. This third option is important to keep in mind when analyzing data.
Correlation is the engine under the hood of many market-research methods.
Knowing the proper uses and also the limitations of correlation will improve your ability to carry out market research and use it to make intelligent business decisions. In my next column, I'll take the discussion of multivariate methods a step further and discuss some Web applications. Michael Hochster received his Ph.D. in statistics from Stanford University and a B.A. in mathematics with high distinction from the University of California at Berkeley, where he was elected to Phi Beta Kappa in his junior year. Before joining cPulse , Michael worked as an applied statistician in the drug discovery group at Schering-Plough Research Institute. He has taught graduate-level courses in theoretical and applied statistics at Stanford University and The State University of New Jersey at Rutgers.