Multicollinearity

Accounting Dictionary

Multicollinearity

If the independent variables plotted on the x axis are related, the results of your graph may be invalid. This is called multicollinearity.

For example you might do a graph to see how the cost of labor affects profits. Then you might do a graph measuring how the cost of goods sold affects profits. Since the cost of labor is part of the cost of goods sold, the variables are related and your results may not be as informative as you might hope.

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