ICAEW BIP · Chapter 8 · Question 3 of 10
Across a retailer's stores, the correlation coefficient between monthly sales of ice cream and monthly sales of sunglasses is +0.88. Which conclusion is most appropriate?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) There is a strong positive association, but it is probably caused by a third factor, such as warm sunny weather, so neither product should be assumed to cause sales of the other
Explanation
A coefficient of +0.88 shows a strong positive linear association: the two variables tend to rise and fall together. Correlation does not prove causation. Here both are likely to be driven by a third variable (the weather), so a forecast or decision that assumes one causes the other would be unreliable.
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