The document discusses whether variables are dichotomous or scaled when calculating correlations. It provides examples of correlations between ACT scores and whether students attended private or public school. One example has ACT scores as a scaled variable and school type as dichotomous. Another has lower and higher ACT scores as dichotomous and school type as dichotomous. It emphasizes determining if variables are both dichotomous, or if one is dichotomous and one is scaled.