Share Price Prediction and Variance Analysis: Intu Properties PLC

This report analyzes the share price of Intu Properties PLC, a UK-based Real Estate Investment Trust (REIT), from September 30, 2019, to February 3, 2020. The study aims to predict share prices and investigate the variance between actual and predicted values. The report uses the moving average method to predict share prices and employs statistical methods like variance and correlation to determine the relationship between actual and predicted share prices. The calculation of variance reveals how spread out the data points are from the mean. The coefficient of correlation, calculated using Pearson's correlation coefficient, indicates a strong positive relationship (0.98) between the actual and predicted share prices. The report concludes that there is a strong relationship between the actual and predicted share prices during the specified period, highlighting the utility of the chosen methods for financial analysis. The report includes references to relevant books and journals.

Report

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Calculation.......................................................................................................................................3
Result and discussion.......................................................................................................................5

INTRODUCTION
A well-maintained portfolio is considered as the vital aspect for success of investors in
today’s financial marketplace. Such portfolio should meet the future capital requirements where,
for consistent long term growth of investment, it is essential for investors to determine the asset
allocation in appropriate manner, by aligning it with goals and risk tolerance. Further, next step
is to pick individual assets then monitor diversification of portfolio and make adjustment if
necessary. In this regard, to prepare a portfolio, first company which is chosen here is Intu
Proprieties PLC. It is one of the Real Estate Investment Trust (REIT) of UK, which is majorly
focused on management and development of shopping centre. This firm has owned more than 17
shopping centres in Britain and three in Spain. Along with this, its shares are also listed on
Johannesburg and London stock exchange. In this regard, determining its investment rates, it has
been identified that founders of this company viz. John Strachan (Chairman), John Whittaker
(DC) and David Fischel (CEO) are considered as the successful investors of UK. Therefore,
selecting this firm for present report will help in addressing the main requirements, in a better
way. This requirement is to conduct an investigation of variance of prices between companies.
Under the present report, main aim is to predict the share price of upcoming days in stock
market, therefore, to analyse this, decision to choose Intu Properties Plc consider as effective
one, because it is one of the well-known trader firm of UK. So, finding or assuming its share
price would be more easy then others.
To analyse the variance of share price, data and corresponding share is chosen from weeks
of Monday 30 Sept.2019 to Monday 3 Feb.2020. For investigating the variance of price,
predicted value of share price will be compared with actual price under this report, by utilising
the statistical methods and techniques. On the basis of such methods, like variance and
correlation, relationship will determine between actual and predicted share price.
MAIN BODY
Data about share price on corresponding dates i.e. from Monday 30 Sept.2019 to Monday 3
Feb.2020, of Intu Proprieties PLC is assumed as actual price (X) as shown in below table. While
predicted value is calculated by taking aggregated value of three days i.e. average of three dates.
This method is also known as moving average mainly used for smoothing out the price actions
via filtering out the ‘noise’ from fluctuations of short-term price. As this method is based on past
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price, therefore, in context with present project which is based on share price from some months
of 2019 to 2020, so, using moving average method helps in identifying the trend direction by
providing greater weight to recent prices. For predicting trends of share price in stock market,
from common time periods to 15, 20, 30, 50, 100 and even 200 days. It would help in generating
a trading signal for traders also.
Taking data of Intu Properties Plc (X) and using the moving average method as arithmetic
mean of three past prices, helps in obtaining a trend line (Y) between actual and predicted value
of share on chosen dates in following way -
y = -5.3281 x + 708.72
This trend line or linear regression can be used to predict the future values of share price in
stock market.
Now, to investigate the variance between share price and relationship between actual and
predicted value, variance and correlation methods are used. Variance helps in measuring how far
a particular set of data is spread where if variance is calculated as zero that values are identical.
While, a small variance depicts that the data points are tend to be much close to mean, as well as
to each other. On contrast, if there will be a high variance then it indicates that all data points of a
set are much spread out from each other and from the mean also. Variance thus, can be defined
as an average of squared distances of a set of data from each point to the mean. The another
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method used to determine relationship between two variables is coefficient of correlation. The
value calculated by using Pearson’s correlation coefficient is always lie between -1 and 1, where
-1 indicates negative relationship and 1 strong positive relationship. other than this, if its value is
zero then there will be no relationship between two set of data variables. In the given stock
value of share price, the both variance and correlation of coefficient is calculated in following
manner –
Var (X) = 1 [n ƩX2 – (ƩX)2]
n2
= 1 [ 14 x 6263910.24 – (9358.4)2]
142
= 1/196 x [87694743 - 87579650.56]
= 1/196 x 115092.4
≈ 587.2061
Var (Y) = 1 [n ƩY2 – (ƩY)2]
n2
= 1 [ 14 x 6268946.809 – (9362.667)2]
142
= 1/196 x [87765255 - 87659527.11]
= 1/196 x 105727.9
≈ 539.4281
Coefficient of Correlation (rxy) = n ƩXY – (ƩX) (ƩY)
(√nƩX2 – (ƩX)2) (√nƩY2 – (ƩY)2)
From the above table –
rxy = 14 x 6266289 – (9358.4 x 9362.667)
(√ 14 x 6263910.24 – (9358.4)2) (√14 x 6268947 – (9362.667)2)
rxy = 87728046 – 87619580.04528
(√ 115092.8 x 105728.2)
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rxy = 108463.1 ≈ 0.98
110311.17
Result and discussion
From the above calculation, it has been identified that there is a strong relationship between
actual and predicted value of share price, offered by investors of Intu Properties Plc in the given
period of Monday 30 Sept.2019 to Monday 3 Feb.2020. While, by calculating variance, it has
been identified that data points of these corresponding dates, are highly spread out from mean as
well as from each other.
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REFERENCES
Books and Journals
Kimball, M.S., Shapiro, M.D., Shumway, T. and Zhang, J., 2019. Portfolio rebalancing in
general equilibrium. Journal of Financial Economics.
Aït-Sahalia, Y. and Matthys, F., 2019. Robust consumption and portfolio policies when asset
prices can jump. Journal of Economic Theory, 179, pp.1-56.
Henriksson, R., Livnat, J., Pfeifer, P. and Stumpp, M., 2019. Integrating ESG in portfolio
construction. The Journal of Portfolio Management, 45(4), pp.67-81.
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