1. Association vs. Causation

2. Correlation & Causation
Correlation does not imply causation
Example:
A study is done at Hickory Hill Elementary. The results show that the association between shoe size and reading ability is strong and linear with a correlation that is very close to 1. Should we buy kids bigger shoes to improve their reading ability?

3. Lurking Variables
Variable having an important effect on the relationship of the variables in a study but is not included in the study.
Example: Discrimination in medical Treatment?
Detailed Tests
Aggressive Treatment
Men
Chest Pains
Women
Some Tests
Moderate Treatment
Lurking Variable: Age

4. Advertising

6. Averaged Data
Correlations based on averages are too high to be applied to individuals.
Example:
From January to November of 2007 the S&P 500 Index gains are linear with correlation r = .75.
If we instead looked at data from all 500 individual stocks, how would the correlation change?
Lower!

7. Scatterplots & Correlation WS