Demi To

DS101 – 07

Sudhir Thakur

HW#3 Stock Beta Analysis

Plot of Fitted Model

JPM ROR = 0.00647753 + 1.11811*S&P ROR

0.26

0.16
JPM ROR

0.06

-0.04

-0.14
-0.07 -0.03 0.01 0.05 0.09
S&P ROR

Simple Regression - JPM ROR vs. S&P500 ROR

Dependent variable: JPM ROR
Independent variable: S&P ROR
Linear model: Y = a + b*X
Number of observations: 60

Coefficients
Least Squares Standard T
Parameter Estimate Error Statistic P-Value
Intercept 0.00647753 0.00581827 1.11331 0.2702
Slope 1.11811 0.197376 5.66485 0.0000

Analysis of Variance
Source Sum of Squares Df Mean Square F-Ratio P-Value
Model 0.0613841 1 0.0613841 32.09 0.0000
Residual 0.110945 58 0.00191284
Total (Corr.) 0.172329 59

Correlation Coefficient = 0.596828

R-squared = 35.6203 percent
R-squared (adjusted for d.f.) = 34.5103 percent
Standard Error of Est. = 0.043736
Mean absolute error = 0.0353463
Durbin-Watson statistic = 2.25338 (P=0.8417)
Lag 1 residual autocorrelation = -0.128691
Interpretation:
JPM ROR = 0.00647753 + 1.11811*S&P500 ROR

Intercept – When S&P500 is 0, Chase P. Morgan’s minimum rate of return is .0064.

Slope – For every one unit increase in S&P500, JPM’s rate of return increases by 1.12

Rsquared – 35.62% variability in JPM’s rate of return accounted due to rate of return of S&P500. The model as
fitted explains 35.62% of variability

Hypothesis Test:

H0 : β1 = 0

Ha : β1 ≠ 0

Analysis/Conclusion: Since the Pvalue, .0000, is less than alpha, .05, we reject the null hypothesis. There is
sufficient evidence that shows a statistically significant relationship between the ROR of JPM and ROR of S&P500
at 95% confidence level.

Plot of Fitted Model

BAC ROR = 0.0044933 + 1.291*S&P500 ROR

0.34

0.24
BAC ROR

0.14

0.04

-0.06

-0.16
-0.07 -0.03 0.01 0.05 0.09
S&P500 ROR

Simple Regression - BAC ROR vs. S&P500 ROR

Dependent variable: BAC ROR
Independent variable: S&P500 ROR
Linear model: Y = a + b*X
Number of observations: 60

Coefficients
Least Squares Standard T
Parameter Estimate Error Statistic P-Value
Intercept 0.0044933 0.00832644 0.539642 0.5915
Slope 1.291 0.282462 4.57054 0.0000

Analysis of Variance
Source Sum of Squares Df Mean Square F-Ratio P-Value
Model 0.0818359 1 0.0818359 20.89 0.0000
Residual 0.227215 58 0.00391751
Total (Corr.) 0.309051 59

Correlation Coefficient = 0.514584

R-squared = 26.4797 percent
R-squared (adjusted for d.f.) = 25.2121 percent
Standard Error of Est. = 0.06259
Mean absolute error = 0.0462134
Durbin-Watson statistic = 1.77119 (P=0.1911)
Lag 1 residual autocorrelation = 0.0837615

Interpretation:
BAC ROR = 0.0044933 + 1.291*S&P500 ROR
Intercept – When S&P500 is 0, Bank of America’s minimum rate of return is .0045.
Slope – For every one unit increase in S&P500, BAC rate of return increases by 1.29
Rsquared – 26.48% variability in BAC ’s rate of return accounted due to rate of return of S&P500. There is a low
cause and effect relationship between BAC’s returns and S&P500’s returns.
Hypothesis Test:
H0 : β1 = 0
Ha : β1 ≠ 0
Analysis/Conclusion: Since the Pvalue, .0000, is less than alpha, .05, we reject the null hypothesis. There is
sufficient evidence that shows a statistically significant relationship between the ROR of BAC and ROR of S&P500
at a 95% confidence level.

Plot of Fitted Model

WFC ROR = -0.000331193 + 0.993237*S&P500 ROR

0.17

0.12

0.07
WFC ROR

0.02

-0.03

-0.08

-0.13
-0.07 -0.03 0.01 0.05 0.09
S&P500 ROR

Simple Regression - WFC ROR vs. S&P500 ROR

Dependent variable: WFC ROR
Independent variable: S&P500 RORp
Linear model: Y = a + b*X
Number of observations: 60

Coefficients
Least Squares Standard T
Parameter Estimate Error Statistic P-Value
Intercept -0.000331193 0.00591108 -0.0560292 0.9555
Slope 0.993237 0.200525 4.9532 0.0000

Analysis of Variance
Source Sum of Squares Df Mean Square F-Ratio P-Value
Model 0.0484391 1 0.0484391 24.53 0.0000
Residual 0.114512 58 0.00197435
Total (Corr.) 0.162951 59

Correlation Coefficient = 0.545216

R-squared = 29.7261 percent
R-squared (adjusted for d.f.) = 28.5144 percent
Standard Error of Est. = 0.0444337
Mean absolute error = 0.0321259
Durbin-Watson statistic = 2.20463 (P=0.7912)
Lag 1 residual autocorrelation = -0.107778

Interpretation:
WFC ROR = -0.000331193 + 0.993237*S&P500 ROR

Intercept – When S&P500 is 0, Wells Fargo’s minimum rate of return is -.000331193.

Slope – For every one unit increase in S&P500, WFC’s rate of return increases by .99.

Rsquared – 29.73% variability in WCF’s rate of return accounted due to rate of return of S&P500. The model as
fitted explains 29.73% of variability in WFC ROR. There is a low cause and effect relationship between BAC’s
returns and S&P500’s returns.

Hypothesis Test:

H0 : β1 = 0

Ha : β1 ≠ 0

Analysis/Conclusion: Since the Pvalue, .0000, is less than alpha, .05, we reject the null hypothesis. There is
sufficient evidence that shows a statistically significant relationship between the ROR of WFC and ROR of S&P500
at a 95% confidence level.