Business statistics

CIA- III (a)

Correlation
Industry= textiles

Submitted to: prof. Roy Mathew

Submitted on: 8th April 2021

Team members
1. Ananya chandwani 2023648 (Vardhaman textiles)
2. K.S. Sri Sangmeshwaran 2023616 (Pioneer
embroiders)
Vardhman Textiles Limited (formerly Mahavir Spinning
Mills Limited) was founded. The company is one of India's
largest garment producers, with operations ranging from
yarn production to cloth production. Cotton wool, synthetic
yarn, and woven cloth are all manufactured by the
company. The business widened its product line and
targeted new markets.

Pioneer Embroideries Limited is a leading producer and

exporter of embroidered goods, as well as Torchon/Bobbin
laces, Raschel laces, and other garment accessories. They
are synonymous with “Hakoba,” the largest retailer of
embroidered clothes. This spectacular, trailblazing
achievement (largest retail chain for embroi) is the
culmination of a strong vision combined with an emphasis
on consistency, imagination, and innovation.
Correlation:
Correlation is a statistical measure that expresses the
extent to which two variables are linearly related
(meaning they change together at a constant rate). It’s a
common tool for describing simple relationships
without making a statement about cause and effect.
Year Close Price Vardhaman textiles Close Price pioneer embroideries Column1
2007 171.05 262.95
2008 59 14.01
2009 209.2 19.4
2010 301.65 24.35
2011 174.75 10.36
2012 245.55 8.48
2013 375.8 8.4
2014 456.4 22.25
2015 810.05 79.85
 2016 1110.4 50.45
2017 1367.55 38.9
2018 1114.5 27.55
2019 995.15 29.6
2020 1084.55 37.75
2021 1201.05 39.5 -0.092773248

Inference:
1. Relationship established
 Since both companies are of same industry they are very closely linked. This is a case
of negative correlation hence when price of one increases the price of other decreases.
In statistics, a perfect negative correlation is established when the value is -1.
Negative correlation is put to use when constructing diversified portfolios, so that
investors can benefit from price increases in certain assets when others fall.
 Our result is -0.092277 which is not quite close to-1. Hence this situation is called
low degree of negative correlation. The degree to which one variable moves in
relation to the other is measured by the correlation coefficient, which quantifies the
strength of the correlation between two variables.
Since Vardhaman textiles and pioneer embroiders have a correlation of approx. -0.1,
it is considered weak negative correlation.

 For an investor point of view, it is very important to understand the diversity of your
stocks. Since both these companies are of a same industry there not much diversity.
Hence an investor doesn’t gain anything when the stocks of one company rise. The
government schemes for each firm in an industry are similar hence growth is
dependent on overall economies performance. The risk factor is increased in this
situation.

2. Sign
The sign of our result is negative -0.092277.
A negative (inverse) correlation occurs when the correlation coefficient is less than
0. This is an indication that both variables move in the opposite direction. The sign
of the linear correlation coefficient indicates the direction of the linear relationship
between x and y. 
When r (the correlation coefficient) is near 1 or −1, the linear relationship is
strong; when it is near 0, the linear relationship is weak.
 3. Extent of linearity
Correlation coefficients are indicators of the strength of the linear relationship
between two different variables, x and y. A linear correlation coefficient that is
greater than zero indicates a positive relationship. A value that is less than
zero signifies a negative relationship.

 A negative correlation, or inverse correlation, is a key concept in the

creation of diversified portfolios that can better withstand portfolio
volatility.
 Our result came out to 0.092277 which is very close to 0.
 If the correlation coefficient of two variables is zero, there is no linear
relationship between the variables. However, this is only for a linear
relationship. It is possible that the variables have a strong curvilinear
relationship. When the value of ρ is close to zero, generally between
-0.1 and +0.1, the variables are said to have no linear relationship or a
very weak linear relationship.
 The linear correlation coefficient can be helpful in determining the
relationship between an investment and the overall market or other
securities. It is often used to predict stock market returns.

4. Diagrammatic representation
 Close Price vardhaman textiles Close Price pioneer embroideries
12

10

0
0 2 4 6 8 10 12