Generally it is my understanding that a correlation (or negative correlation) over .5 is strong and over .1 is weak. A correlation of 0 would mean that there is no relationship between the values at all.
Data set: Loans started between 2005-2008 which were not Cancelled
Credit Grade was scored as: AA=10, A=9, ..., HR = 4
Loan Outcome was scored as: Paid = 3, PaidInFull and RecoveredInFull = 2, Everything Else = 1
Title has need was scored as: Yes = 1, No = 0
Description has need was scored as: Yes = 1, No = 0
DTI and Amount Requested were as published by Prosper
|Credit Grade||Description Has Need||Debt To Income||Amount Requested||Title has Need||Loan Outcome|
|Description Has Need||-.17||1||.01||-.04||.16||-.11|
|Debt To Income||.03||.01||1||.09||0||0.04|
|Title Has Need||-.11||.16||0||-.05||1||-.06|
As we would expect, we see some stronger correlations, like the .3 between credit grade and loan outcome. We also see a decent correlation between the description and the title having the word "need" in them.
It is interesting to see a -.11 correlation between loan outcome and the word "need" in the description of the loan -- this is stronger than the -.06 correlation when we look at the title. In a future post we'll do a t-test to see if these results are statistically significant.
All Articles in the Needs Series
Comparing to Lending Club
What We Fund