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direction, whether up or down. A correlation of zero indicates
that the two quantities change without reference to each other.
A correlation of negative one indicates that the two quantities
change in exact proportion, but in opposite directions: When one
goes up, the other goes down. In addition, the square of the
correlation coefficient is termed the coefficient of
determination (R2). Generally, R2 measures the predictive power
of one variable with respect to another variable. The principal
experts in this case do not limit their use of the term
“correlation” to represent R in the technical sense, but rather,
use that term to signify R2 at times and also to signify the
general relationship between two variables. We shall conform,
for purposes of this report, to the experts’ broad usage of the
term “correlation”.
Dr. Seago states in his rebuttal report that “[t]he purpose
of ascertaining whether shrinkage correlates to sales is to test
whether Target's use of sales to estimate shrinkage is
appropriate.” Dr. Seago acknowledges that testing the
correlation of sales and shrinkage at the LIFO pool level for
Target would be highly relevant because tax effects occur at that
level, but, since data to test that correlation does not exist,
he concludes that the “next best thing” is to examine correlation
at the aggregate division level. Dr. Seago is of the opinion
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