Karen Phelan - I'm Sorry I broke Your Company

For example, one stock market predictor is the Super Bowl Index (SBI). The SBI states that the stock market will rise in years in which the NFC (National Football Conference) team wins the Super Bowl, and it has an 80 percent correlation. Statistically, that's a very high correlation, so make sure you buy stocks whenever the NFC wins! However, when you examine the SBI more closely, you realize that there is no relationship between the variables at all. The NFC teams win the Super Bowl more often than the AFC (American Football Conference), and the stock market has more bull years (it goes up over time) than bear years. Any randomly chosen year should see a bull market and an NFC win. The two highly correlated variables have no actual relationship to each other.

Not too long ago, I had a phone conversation with a representative from a large talent management consultancy on It's menu of leadership assessments. The woman assured me that using her firms leadership assessments was highly correlated with business success. When I asked her to explain this, she said that statistical analyses showed that clients who used these assessments performed above the industry average in revenue growth.

Therefore, using these assessments would make a company successful, at least in terms of revenue growth. However, a much more plausible explanation is that successful companies, those with money, are more likely to buy leadership assessments than those without money. Another more plausible hypothesis is that companies that invest in employee development are likely to outperform those that don’t. Making the conclusion that company success was due to the use of leadership assessments is more a leap of faith than an evidence-based result. The only conclusion you can reach from two highly correlated variables is that you need to do more research.

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