Scatter plot

Definition

A scatter plot is a type of graph used to display and analyze the relationship between two quantitative variables. Each point on the graph represents an observation from a dataset, where the x-axis and y-axis correspond to the values of the two variables being compared.

5 Must Know Facts For Your Next Test

1. Scatter plots are commonly used in finance to visualize relationships such as stock prices versus trading volume or returns versus risk.
2. The pattern of points in a scatter plot can indicate different types of correlations: positive, negative, or no correlation.
3. Outliers on a scatter plot can significantly affect the interpretation of data and should be carefully analyzed.
4. In regression analysis, a scatter plot helps to visually inspect if a linear model is appropriate for the data.
5. The strength and direction of a relationship shown in a scatter plot can be quantified using correlation coefficients.

Review Questions

• What does each point on a scatter plot represent?
• How can you identify positive and negative correlations from a scatter plot?
• Why is it important to look for outliers when analyzing a scatter plot?

Related terms

Correlation Coefficient:

A numerical measure that indicates the strength and direction of a linear relationship between two variables.

Regression Line: A line through a scatter plot that best expresses the relationship between those points.

Outlier:

An observation that lies an abnormal distance from other values in the data set.