Statistics Chap12, Cases
Chapter 12
Simple Linear Regression
Case Problem 1: Measuring Stock Market Risk
a. Selected descriptive statistics follow:
Variable N Mean StDev Minimum Median Maximum Microsoft 36 0.00503 0.04537 -0.08201 0.00400 0.08883 Exxon Mobil 36 0.01664 0.05534 -0.11646 0.01279 0.23217 Caterpillar 36 0.03010 0.06860 -0.10060 0.04080 0.21850 Johnson & Johnson 36 0.00530 0.03487 -0.05917 -0.00148 0.10334 McDonald’s 36 0.02450 0.06810 -0.11440 0.03700 0.18260 Sandisk 36 0.06930 0.19540 -0.28330 0.07410 0.50170 Qualcomm 36 0.02840 0.08620 -0.12170 0.03870 0.21060 Procter & Gamble 36 0.01059 0.03707 -0.05365 0.01333 0.08783 S&P 500 36 0.01010 0.02633 -0.03429 0.01034 0.08104
From the descriptive statistics we see that six of the companies had a higher mean monthly return than the market (as measured by the S&P 500): Exxon Mobil, Caterpillar, McDonald’s, Sandisk, Qualcomm, and Procter & Gamble. Microsoft and Johnson & Johnson had lower mean monthly returns.
Using the standard deviation as a measure of volatility, Sandisk was the most volatile stock with a standard deviation of .1954. The stocks of Johnson & Johnson and P & G exhibit less volatility than the other individual stocks. But, all of the individual stocks are more volatile than the market as a whole. The diversification embodied in the S&P 500 reduces its volatility.
b. The estimated regression equation relating each of the individual stocks to the S&P 500 is shown below. The value of [pic]for each equation is also shown.
Microsoft = 0.00040 + 0.458 S&P 500 R-Sq = 7.1%
Exxon Mobil = 0.00926 + 0.731 S&P 500 R-Sq = 12.1%
Caterpillar = 0.015000 + 1.49 S&P 500 R-Sq = 32.9%
Johnson & Johnson = 0.00521 + 0.009 S&P 500 R-Sq = 0.0%
McDonald’s = 0.00930 + 1.500 S&P 500 R-Sq = 33.8%
Sandisk
Simple Linear Regression
Case Problem 1: Measuring Stock Market Risk
a. Selected descriptive statistics follow:
Variable N Mean StDev Minimum Median Maximum Microsoft 36 0.00503 0.04537 -0.08201 0.00400 0.08883 Exxon Mobil 36 0.01664 0.05534 -0.11646 0.01279 0.23217 Caterpillar 36 0.03010 0.06860 -0.10060 0.04080 0.21850 Johnson & Johnson 36 0.00530 0.03487 -0.05917 -0.00148 0.10334 McDonald’s 36 0.02450 0.06810 -0.11440 0.03700 0.18260 Sandisk 36 0.06930 0.19540 -0.28330 0.07410 0.50170 Qualcomm 36 0.02840 0.08620 -0.12170 0.03870 0.21060 Procter & Gamble 36 0.01059 0.03707 -0.05365 0.01333 0.08783 S&P 500 36 0.01010 0.02633 -0.03429 0.01034 0.08104
From the descriptive statistics we see that six of the companies had a higher mean monthly return than the market (as measured by the S&P 500): Exxon Mobil, Caterpillar, McDonald’s, Sandisk, Qualcomm, and Procter & Gamble. Microsoft and Johnson & Johnson had lower mean monthly returns.
Using the standard deviation as a measure of volatility, Sandisk was the most volatile stock with a standard deviation of .1954. The stocks of Johnson & Johnson and P & G exhibit less volatility than the other individual stocks. But, all of the individual stocks are more volatile than the market as a whole. The diversification embodied in the S&P 500 reduces its volatility.
b. The estimated regression equation relating each of the individual stocks to the S&P 500 is shown below. The value of [pic]for each equation is also shown.
Microsoft = 0.00040 + 0.458 S&P 500 R-Sq = 7.1%
Exxon Mobil = 0.00926 + 0.731 S&P 500 R-Sq = 12.1%
Caterpillar = 0.015000 + 1.49 S&P 500 R-Sq = 32.9%
Johnson & Johnson = 0.00521 + 0.009 S&P 500 R-Sq = 0.0%
McDonald’s = 0.00930 + 1.500 S&P 500 R-Sq = 33.8%
Sandisk