Regression Analysis Used in Compensation Administration

Correlation and Predictive Reliability

Correlation is a measurement of direction and linear relationship between two variables. But correlation is often not as useful a measurement as its square, R², the Coefficient of Determination. Typically used in regression analyses, R² represents the proportion of variability in y that can be explained by the model.

For example, an R² of 0.7 implies that 70% of the variation in y is accounted for by regressing it on x.

R² can be expressed mathematically as:

yi	y observations
y	The mean of y
	predicted y

is the predicted value of y using knowledge of x.