Link: https://www.actuary.org/sites/default/files/2022-07/Correlation.IB_.6.22_final.pdf
Graphic:
Excerpt:
Examine the quality of the theory behind the correlated variables. Is there good
reason to believe, as validated by research, the variables would occur together? If such
validation does not exist, then the relationship may be spurious. For example, is there
any validation to the relationship between the number of driver deaths in railway
collisions by year (the horizontal axis), and the annual imports of Norwegian crude
oil by the U.S., as depicted below?36 This is an example of a spurious correlation. It is
not clear what a rational explanation would be for this relationship.
Author(s): Data Science and Analytics Committee
Publication Date: July 2022
Publication Site: American Academy of Actuaries