Correlation and RegressionMCQPYQ Sep 24Question 3768 of 188
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In case of "Insurance companies' profit" and "The number of claims they have to pay", there exists a:

Options

ANegative correlation
BPositive correlation
CNo correlation
DIt cannot be predicted
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Correct Answer

Option aNegative correlation

All Options:

  • ANegative correlation
  • BPositive correlation
  • CNo correlation
  • DIt cannot be predicted

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Detailed Solution & Explanation

Correlation measures the relationship between two variables. If an increase in one variable corresponds to a decrease in the other variable, they are negatively correlated. Let: - X\displaystyle X = Number of claims the insurance company has to pay - Y\displaystyle Y = Profit of the insurance company When the number of claims paid (X\displaystyle X) increases, the insurance company has to pay out more money to policyholders. This increase in payouts directly increases the company's expenses, thereby reducing its profit (Y\displaystyle Y). Conversely, when the number of claims decreases, payouts are lower, and profits increase. Since the two variables move in opposite directions, there exists a negative correlation between them. Hence, **Option A** is the correct answer.

About This Chapter: Correlation and Regression

Paper

Paper 3: Quantitative Aptitude

Weightage

4-6 Marks

Key Topics

Correlation Coefficient, Regression Equations

This chapter covers Correlation Coefficient, Regression Equations and is part of Paper 3: Quantitative Aptitude in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 4-6 Marks weightage. Focus on understanding core concepts rather than memorizing.

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