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Econometrics

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Moderate

Effect of Additional Data on Correlation, Example 2

EMETRC-4LL6VL

Suppose that you initially calculated a correlation statistic for random variables $Y$ and $X$, $\rho = 0.25$. Then, you realize that you omitted an observation:

$$(y=5,\ x=-5)$$

What do you predict will happen to the correlation statistic value as a result of adding the observation?

A

The correlation statistic value will not change.

B

The correlation statistic value will decrease.

C

The correlation statistic value will increase.

D

The correlation statistic value will become statistically insignificant from zero.

E

There is not enough information to make the determination.