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Scatter diagram

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Principles of Finance

Definition

A scatter diagram is a graphical representation that displays the relationship between two quantitative variables. It uses Cartesian coordinates to plot data points, each representing an observation in the dataset.

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5 Must Know Facts For Your Next Test

  1. Scatter diagrams help identify potential correlations between two variables.
  2. The slope and pattern of the points can suggest the strength and direction of a relationship.
  3. Outliers in a scatter diagram can significantly affect correlation analysis results.
  4. A linear pattern indicates a possible linear relationship, while a random pattern suggests no correlation.
  5. Scatter diagrams are essential for visualizing data before performing regression analysis.

Review Questions

  • What type of relationship does a scatter diagram illustrate?
  • How can outliers impact the interpretation of a scatter diagram?
  • What does it mean if the points on a scatter diagram form a clear upward or downward trend?

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