A financial analyst is reviewing a company's sales data using a visualization tool. The scatter plot of monthly advertising expense (x-axis) versus sales revenue (y-axis) shows a tight cluster of points rising from left to right, but one data point for December is located far above the cluster. Which of the following is the MOST appropriate interpretation and next step?

Answer options:

The correlation is negative; the analyst should recommend reducing advertising spend.

The December point represents an outlier that proves advertising is ineffective; exclude it from analysis.

The data indicates a strong positive correlation; the analyst should assume December's performance is due to the high advertising spend.

The data indicates a positive correlation, but the December outlier suggests a potential anomaly or seasonality; the analyst should investigate other drivers for that month.

How to approach this question

Interpret the scatter plot trend (slope) for correlation. Identify outliers (points far from the trend line). Determine the analytical implication (investigate root cause).

Full Answer

D.The data indicates a positive correlation, but the December outlier suggests a potential anomaly or seasonality; the analyst should investigate other drivers for that month.✓ Correct

The rising cluster indicates a positive correlation between advertising and sales. The December outlier (high sales relative to ad spend) suggests that advertising wasn't the sole driver of that month's performance; seasonality or other factors likely contributed. The analyst must investigate rather than assume.

Common mistakes

Ignoring outliers; assuming correlation equals causation without considering other variables; misinterpreting the slope.

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