Insert Tab> Charts> Scatter Plots)Ī data point on the graph shows how the USD x spot price for 1 barrel of Brent corresponds with the USD y spot price for 1 barrel of West Texas on any given day.Īs mentioned earlier a line of best fit is usually added to a scatter plot in order to better assess the strength and direction of the relationship between variables. Next using EXCEL’s chart function we construct scatter plots from the two time series obtained (i.e. To ensure the quality of the analysis it is important that data used in the study is obtained from reliable sources- always remember the old computer adage “Garbage in, garbage out”. To construct a scatter plot we need to first obtain the historical time series data for the variables, in this case, the West Texas Crude Oil and Brent Crude Oil spot price data time series. This line of best fit is used in assessing, in particular, the strength and direction of the relationship between two variables. In addition, we will also see how a line of best fit may be constructed for the given plot. If there any outliers in the dataset being studiedīefore going into each of these four uses of the scatter plot let us first see how it may be constructed in EXCEL and what the data points in the resulting plot tell us.The functional form of the relationship.It ties in with the correlation coefficient as it is used for indicating whether a linear relationship exists or not between two variables. A scatter plot is a visual representation of the correlation between two items.
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