Tuesday, March 21, 2017

Popular Topics #3

In this final installment of Popular Topics, Scatterplots and the Coefficient of Determination have been a very frequent hit in the past 8 years.

A Scatterplot Chart and accompanying COD (Coefficient Of Determination) are regularly used to show the relationship between two sets of data. For example, a sales manager may plot the Number of Sales Calls Taken with the Number of Sales Made. Another case is comparing the Average Length of Time a customer service representative takes per call and the Overall Quality Score of their calls.

The Strength of the correlation is particularly important.  To determine the strength between sets of data, experienced Excel users can make a Scatterplot Chart and:

1. Right-click on one of the data points and
2. Choose Add Trendline
3. Right-click the Trendline and choose Format Trendline
4. Format the Trendline to your aesthetic preferences and
5. Put a Checkmark next to Display R-squared Value on Chart

The R-Squared value is your Coefficient of Determination (COD) that will indicate how strong your data on your two axes. In the graph example below, the COD value is .5574 (or approximately 56%) representing a Strong Correlation (and therefore reliable).

The next time you have two related sets of data, try using a Scatterplot and Coefficient of Determination to test the strength of the correlation. This can be very informative, and can positively impact business decisions.  The technique is Fast, Effective, and remarkably Easy.

No comments: