How Do I Calculate Correlation in Excel?

Correlation is a statistical measure that describes the relationship between two variables. When you calculate correlation, you are determining how strongly two sets of data are related. If two variables have a positive correlation, as one increases, the other tends to increase as well. If they have a negative correlation, as one increases, the other tends to decrease.

In this article, we will see how to find the correlation between two variables in Excel in easy steps.

What is Correlation?

Correlation is a measure of the strength and direction of the relationship existing between two variables. It is described by a value known as the correlation coefficient (r). The correlation coefficient may take any value between:

• +1: Perfect positive correlation—the variables move up together.
• −1: Perfect negative correlation—one variable moves up, while the other moves down.
• 0 : No relationship–the variables are independent

The closer to +1 or -1 a correlation is the stronger the relationship; the closer to 0, the weaker or non-existent the relationship.

Steps to Calculate Correlation in Excel

Follow these easy steps to calculate correlation in Excel.

1. Prepare Your Data

Organize your data first before you get down to calculate the correlation. You would need two columns of data where each column should represent one variable.

For instance, let’s say you have study hours and test scores for a group of students. Your Excel sheet may look something like this:

Hours Studied	Test Scores
5	80
8	90
3	70
7	85
6	75

In this example, “Hours Studied” is one variable, and “Test Scores” is the second variable.

2. Use the CORREL Function

Excel has a built-in function called CORREL that can be used to calculate the correlation between two variables. Here’s how you can use it:

1. Click on an empty cell where you want to display the correlation result.
2. Type the following formula: =CORREL(range1,range2)=CORREL(\text{range1}, \text{range2})=CORREL(range1,range2)
   • range1 is the range of values for the first variable (e.g., Hours Studied).
   • range2 is the range of values for the second variable (e.g., Test Scores).

For our example, the formula would look like this:

=CORREL(A2:A6,B2:B6)=CORREL(A2:A6, B2:B6)=CORREL(A2:A6,B2:B6)

Where A2:A6 represents the hours studied, and B2:B6 represents the test scores.

1. Press Enter. Excel will calculate the correlation coefficient and display the result in the selected cell.

3. Interpret the Correlation Coefficient

Once you’ve calculated the correlation, you can interpret the result based on the following guidelines:

• +1: Perfect positive correlation (the variables increase together).
• 0.7 to 1: Strong positive correlation.
• 0 to 0.7: Weak positive correlation.
• 0: No correlation.
• -0.7 to -1: Strong negative correlation.
• -1: Perfect negative correlation (one variable increases while the other decreases).

For instance, if the correlation coefficient for our data set is 0.95, it would mean that there is a very strong positive correlation between hours studied and test scores. This shows that as the number of hours studied increases, test scores also tend to increase.

4. Create a Scatter Plot (Optional)

To visualize how the two variables relate, one can create a scatter plot in Excel. This would help in knowing whether there is a clear pattern in the data.

Highlight both columns of data: Hours Studied and Test Scores.

Go to the Insert tab on the Excel ribbon.

Click Scatter Plot under Charts.

Choose the first scatter plot type, which is dots only and not lines.

The scatter plot will show you the dots representing the data points, and the pattern will help you visualize the type of correlation. If the dots form a line that goes up, then the correlation is positive; otherwise, if it slopes downward, the correlation is negative.

Example: Calculating Correlation in Excel

Let’s go through an example:

Hours Studied (A)      Top Scores (B)

5                                              80

8                                              90

3                                              70

7                                              85

6                                              75

Now, to calculate the correlation between Hours Studied (A2:A6) and Test Scores (B2:B6):

1. Click on an empty cell, say C1.
2. Type the formula =CORREL(A2:A6,B2:B6)=CORREL(A2:A6, B2:B6)=CORREL(A2:A6,B2:B6)
3. Press Enter.

The answer may turn out to be 0.97, which postulates a very strong positive correlation between the two variables.

Why is calculating correlation important?

Interpretation of the correlation between two variables is necessary because:

• It enables one to understand the relations between variables.
• It can aid in predicting one variable on the basis of the other.
• It could bring out patterns in data that might not be visible in initial observation.

Suppose you find that hours studied strongly relate to test scores, then you can use that to predict scores based on the amount of study time.

Conclusion

Calculating the correlation in Excel is easy; it only takes a couple of steps with the CORREL function. Follow these steps, and you will find out how strong and in which direction the relationship between two variables is. Whether it be sales data, test scores, or whatever else, learning about correlation really can be a potent tool in exposing important patterns.