Correlation means that two or more sets of data move in some consistent pattern. Perhaps during a 10-year period the number of cars sold in the U.S. moved in the same direction as the country’s rate of inflation. Even with a 10-year correlation between the two sets of data, it is unlikely that more inflation caused an increase in the number of cars sold. In other words, correlation does not assure that there is a cause and effect relationship.
On the other hand, if there is a cause and effect relationship, there will have to be correlation.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.
He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.
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