ACCA Performance Management (F5) Certification Practice Exam

What is the range of the correlation coefficient?

1. 0 to 1

2. -1 to 1

3. -100 to 100

4. -0.5 to 0.5

The correct answer is: -1 to 1

The correlation coefficient is a statistical measure that reflects the degree to which two variables are related. Its range is from -1 to 1, which encapsulates the entire spectrum of possible relationships between the variables. A correlation of -1 indicates a perfect negative linear relationship, meaning that as one variable increases, the other decreases in a perfectly linear fashion. A correlation of 1, on the other hand, indicates a perfect positive linear relationship, where both variables move in the same direction. A correlation of 0 implies no linear relationship between the variables at all. This range (from -1 to 1) is fundamental in various analyses, including regression and statistics, as it helps quantify relationships and make predictions based on observed data. The values outside this range, such as those suggested by other choices like 0 to 1 or -100 to 100, do not accurately reflect the mathematical properties of the correlation coefficient. Consequently, understanding that the correlation coefficient ranges from -1 to 1 is essential for the accurate interpretation of relationships in data analysis.