Cost Accounting Interview Question:

Define the coefficient of correlation, When coefficient of correlation is squared?

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When the coefficient of correlation is squared, it becomes the coefficient of determination. This means that an r of +0.80 or -0.80 will result in a coefficient of determination of 0.64 or 64%. This tells you that 64% of the change in the total of the dependent variable is associated with the change in the independent variable. An r of +0.20 or -0.20 indicates that only 4% (0.20 x 0.20) of the change in the dependent variable is explained by the change in the independent variable.
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