We present for the first time within the cloud physics context, the application of wavelet phase coherence analysis to disentangle counteracting physical processes associated with the lead-lag phase difference between liquid water path (LWP) and cloud droplet number concentration (Nd) in an Eulerian framework using satellite-based observations and climate model outputs. This approach allows us to identify the causality and typical adjustment timescales governing the correlation between LWP and Nd. Satellite observations indicate a more prevalent positive correlation between daytime LWP and Nd regardless of whether LWP leads or lags Nd. The positive cloud water response, associated with precipitation processes, typically occurs within 1 hour, while the negative response resulting from entrainment drying, usually takes 2-4 hours. CAM6 displays excessively rapid negative responses along with overly strong negative cloud water response and insufficient positive response, leading to a more negative correlation between LWP and Nd compared to observations.