Question

What is the difference between correlation and causality? Provide a real or hypothetical example for each: one that indicates a causal relationship and one that does not.

Answer 1

In correlation analysis, we calculate the correlation coefficient which is a measure of the degree of association between X and Y. Correlation is only a tool to ascertain the degree of relationship between X and Y. We can not assign cause and effect relationship between X and Y.

In causality we look for a cause-effect relationship between two variables. The relationship may be expressed mathematically by different types of functions.

The SAT scores of a set of 200 students and the number of days spent by them preparing for the exam have not only a positive correlation but also a causal relationship. The average income of people in a town may have been increasing over the last 20years. Similarly, there is evidence that the number of plant species in nature is decreasing with time. These two variables have a negative correlation, but there is no causality between them.