Question

Let xbe the average number of employees in a group health insurance plan, and let y be the average administrative cost as a percentage of claims. Suppose a random sample of employees gave the following information.

x	2	8	14	32	73
y	50	45	35	28	16

As x increases, does the value of r imply that y should tend to increase, decrease, or remain the same? Explain.

Answer 1

Using the CORREL function in excel we find the value of r to be -0.95. Since r has a negative value, as the value of x increases the value of y will decrease.

r is the correlation coefficient and it states whether the relationship between two variables is positive or not. If the relation ship is positive then r is also positive and in that as one variable is increased the other variable increases too. Alternative when the relationship is negative then r is negative and as one variable increases the value of other variable decreases.