Applied Management Statistics: Stock Market Analysis - BCO127

This assignment solution provides a comprehensive analysis of stock market data using statistical methods. It begins with descriptive statistics for various stocks (Exxon Mobil, Caterpillar, McDonald’s, Sandisk, Qualcomm, and Procter & Gamble) and the S&P 500, comparing their mean returns and volatility. The solution explains why the S&P 500 is less volatile due to diversification. It then presents regression results for each stock against the S&P 500, including R-squared values. The assignment further calculates and interprets the beta values for each stock, explaining the implications of beta values greater than and less than 1, and identifying which stocks benefit most from an up market. The R-squared values are explained in terms of the proportion of variation in a company's stock return explained by market return. References to relevant academic papers are also included. The assignment demonstrates a practical application of statistical concepts in financial analysis, addressing the key aspects of the assignment brief and providing a complete and well-structured response.

Running head: APPLIED MANAGEMENT STATISTICS
Applied Management Statistics
Name of the Student
Name of the University
Course ID

1APPLIED MANAGEMENT STATISTICS
Table of Contents
Case Problem 1: Stock Market........................................................................................................2
Question a....................................................................................................................................2
Question b....................................................................................................................................3
Question c....................................................................................................................................7
Question d....................................................................................................................................8
References........................................................................................................................................9

2APPLIED MANAGEMENT STATISTICS
Case Problem 1: Stock Market
Question a
Table 1: Descriptive statistics of the stock market
Exxon Mobil, Caterpillar, McDonald’s, Sandisk, Qualcomm and Procter & Gamble had a
higher mean return than the market return.
The standard deviation is the largest for Sandisk meaning that Sandisk had the most
volatile return.
The S&P index acts as a portfolio of different companies which reduces the unsystematic
risk to a stock. The only risk associated with S&P index is the market risk or systematic risk. In
contrast, when stock return for specific companies are taken into consideration the unsystematic
risks are not diversifiable making make stock more volatile (Hollstein, Prokopczuk and Wese
Simen 2020). Therefore, the main reason for S&P index to be less volatile are the diversification
and reduction of unsystematic risk.

3APPLIED MANAGEMENT STATISTICS
Question b
Table 2: Regression result for Microsoft’s stock and S&P 500
Stock Return=0.1629+(0.4583× S∧P 500)
Table 3: Regression result for Exxon Mobil’s stock and S&P 500
Stock Return=0.0890+(0.7309× S∧P 500)

4APPLIED MANAGEMENT STATISTICS
Table 4: Regression result for Caterpillar’s stock and S&P 500
Stock Return=−0.1329+(1.4932× S∧P500)
Table 5: Regression result for Johnson & Johnson’s stock and S&P 500
Stock Return=0.3026+( 0.0088× S∧P 500)

5APPLIED MANAGEMENT STATISTICS
Table 6: Regression result for McDonald’s stock and S&P 500
Stock Return=−0.1417+(1.5032× S∧P 500)
Table 7: Regression result for Sandisk’s stock and S&P 500
Stock Return=−0.4388+(2.6048× S∧P 500)

6APPLIED MANAGEMENT STATISTICS
Table 8: Regression result for Qualcomm’s stock and S&P 500
Stock Return=−0.1101+(1.4139 × S∧P500)
Table 9: Regression result for Procter & Gamble’s stock and S&P 500
Stock Return=0.1535+(0.5065× S∧P 500)

7APPLIED MANAGEMENT STATISTICS
Table 10: Values of R square for each regression equation
Question c
Table 11: Betas of individual company’s stock
The stocks having beta greater than 1 indicates a high return and high risk stocks. Beta
value above 1 means that the give a change in market return, company return changes by a
greater proportion than change in the market return. Beta less than 1indicates company stocks
are less volatile. If beta value for a company stock is less than 1 then this implies given a change
in market return company return changes by a lower percentage than change in market return.

8APPLIED MANAGEMENT STATISTICS
Stocks that have higher beta especially beta greater than 1 benefits the most from an up
market (Squartini et al. 2017). If market is up, then company having higher beta gets a higher
return which benefits the company.
Question d
The R square values of the model indicate what proportion of variation of company’s
stock return is explained by market return.

9APPLIED MANAGEMENT STATISTICS
References
Hollstein, F., Prokopczuk, M. and Wese Simen, C., 2020. The conditional Capital Asset Pricing
Model revisited: Evidence from high-frequency betas. Management Science.
Squartini, T., Almog, A., Caldarelli, G., Van Lelyveld, I., Garlaschelli, D. and Cimini, G., 2017.
Enhanced capital-asset pricing model for the reconstruction of bipartite financial
networks. Physical Review E, 96(3), p.032315.