Rank correlation is used in a situation when the variable under consideration is not measurable e.g. intelligence, knowledge, experience, beauty etc. Such types of variables are judged by two different people or by two procedures. Therefore it is necessary to find the correlation between judgment of two person or two procedures. For this purpose observations are ranked and the method is called rank correlation coefficient.
The formula for calculating rank correlation is given as:
Problem: Following are the ranks assigned to the customer satisfaction by an organization and its customers. Find the rank correlation.
The value of r shows that there is positive correlation between the company ranking and customer ranking. It also indicates that both company and customer consider these characteristics important for customer satisfaction due to which the association between two rankings is positive.