A data analyst calculates the correlation coefficient (r) between advertising spend and sales revenue to be 0.80.

What does the coefficient of determination indicate in this context?

Answer options:

80% of the variation in sales revenue is explained by the variation in advertising spend.

64% of the variation in sales revenue is explained by the variation in advertising spend.

Sales revenue will increase by 64% for every $1 spent on advertising.

There is a 64% probability that advertising causes sales to increase.

How to approach this question

Calculate the coefficient of determination (r squared) by squaring the correlation coefficient (0.80^2 = 0.64). Understand that it represents the percentage of variation in the dependent variable explained by the independent variable.

Full Answer

B.64% of the variation in sales revenue is explained by the variation in advertising spend.✓ Correct

The coefficient of determination is calculated as r^2. Here, 0.80^2 = 0.64 or 64%. It represents the proportion of the total variance in the dependent variable (sales) that is explained by the independent variable (advertising).

Common mistakes

Confusing the correlation coefficient (r) with the coefficient of determination (r^2).

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