Fun with Statistics: Correlation and Causation

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Jun 12, 2014 10:44:00 AM

and tagged Economics Lessons

Leave a comment

correlation and causationWhenever you look at statistics, there are two things to keep in mind:

  1. Correlation is not causation.
  2. There are three types of lies: lies, damn lies, and statistics.

The second maxim is pretty easy to remember, especially if you disagree with the numbers in question. But the first one—distinguishing between correlation and causation—is somewhat more challenging.

To illustrate that point, let's look at some cases where correlation most likely does not imply causation. (Thanks to www.tylervigen.com for the examples.)

Stop eating cheese now—people are dying!

Per capita consumption of cheese and the number of people who died by becoming tangled in their bedsheets

Correlation: 94.7 percent

correlation and causation
Hydrogenated fats are bad for marriage.

The divorce rate in Maine and per capita consumption of margarine

Correlation: 99.25 percent

correlation and causation

Be careful in the sauna and kitchen—Miss America is almost 23.

The age of Miss America and murders by steam, hot vapors, and hot objects

Correlation: 87 percent

correlation and causation

But where are the birds?

Honey-producing bee colonies and the marriage rate in Vermont

Correlation: 93.7 percent

correlation and causation

Upcoming Appearances

Tune in to CNBC's Power Lunch on Wednesday, February 26, between 1:45 and 3:00 P.M. ET to hear Brad talk about the market. Exact interview time will be updated once confirmed. Check local listings for availability. 

Tune in to Bloomberg Radio's Bloomberg Businessweek on Friday, February 28, at 3:45 P.M. ET to hear Brad talk about the market. Stream the show live at https://www.bloombergradio.com/, listen through SiriusXM 119, or download Bloomberg's app, Bloomberg Radio+.

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®