It can be conjectured that the annual return a security and the market return are related by the following regression model y=mx+b+ε Where y is the annual return of the security, x is the annual return of the market, b is the intercept, Ɛ is the normally distributed noise, and Return = value at end of the year + received dividends during the year - value at the beginning of the year. Test this model by retrieving annual data on a security of your choice. Choose a financial index such as S&P 500 as the indicator of the market, and retrieve the data. Use the most recent 20 years as the time span of the data. Perform regression analysis and make sure to include the hypothesis in your study. Provide your results and write your conclusions. Include all relevant information and conclusions, significances, the final regression model, coefficient of determination, graph of the regression line accompanied in the scatterplot, extent of residuals, and normality of residuals. Does the model seem to be valid according to your study? If so, is the influence positive or adverse? If you conclude influence, then your regression model indicates outperformance or underperformance of the market? Explain all your work in detail.
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
It can be conjectured that the annual return a security and the market return are related by the following regression model
y=mx+b+ε
Where y is the annual return of the security, x is the annual return of the market, b is the intercept, Ɛ is the
Return = value at end of the year + received dividends during the year - value at the beginning of the year.
Test this model by retrieving annual data on a security of your choice. Choose a financial index such as S&P 500 as the indicator of the market, and retrieve the data. Use the most recent 20 years as the time span of the data. Perform
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