Regression analysis of weekly returns between NIFTY50 and Dr. Reddy’s Laboratories
Submitted by: Darshana Manoj Shiporkar
JDBIMS (MMS FY 2021-2023)
Introduction:
Dr. Reddy’s Laboratories is an Indian multinational pharmaceutical company located in Hyderabad, Telangana, India. The company was founded by Kalam Anji Reddy, who previously worked in the mentor institute Indian Drugs and Pharmaceuticals Limited.
Dr. Reddy’s manufactures and markets a wide range of pharmaceuticals in India and overseas. The company has over 190 medications, 60 active pharmaceutical ingredients (APIs) for drug manufacture, diagnostic kits, critical care, and biotechnology products.
Objective:
To understand the regression relationship between average weekly returns of Nifty50 and Dr. Reddy’s Laboratories.
Data Collection:
The closing price data of Nifty50 and Dr. Reddy’s Laboratories was taken from www.nseindia.com (National stock exchange) for the time period from 1st April 2021 to 31st March 2022.
From the available data, the closing rates of all the Fridays in the year was sorted to find out the weekly returns for both Nifty as well as Dr. Reddy’s Laboratories. Then weekly return for both was calculated using Formula:
Weekly Return = ((C3-C2)/C2) *100
Where, C2 is Present week closing price and C1 is previous weeks closing price.
Once the data is calculated, weekly return column for NIFTY50 is considered as X variable and the weekly returns column for Dr. Reddy’s Laboratories is considered as Y variable.
The Model ad formulas used are:
Y = a + bX
X⁻ = ∑X/N
Y⁻ = ∑Y/N
x = X – X⁻
y = Y – Y⁻
b = ∑xy/ ∑(x^2)
a= Y⁻ – bX⁻
e = Y – Y⁻
Variance of error = (( σe) ^2/∑x^2)
T stat for b = b/ S.E of b
TSS = ESS +RSS
ESS= (b^2) *(∑x^2)
RSS = ∑e^2
R^2 = ESS/ TSS
F= Mean ESS/ Mean RSS
Data Analysis:
Utilizing the regression Add-on in Microsoft Excel Data analytics tool below values were acquired:
R square= r^2 = 0.16176315899731
a= -0.464557594
b= 0.728276756
F= 8.10517069347652
P value= 0.416544777597657
Below expression shows the relationship model between Dr. Reddy’s Laboratories and NIFTY50 weekly returns.
Dr. Reddy’s Laboratories Weekly Return = -0.464557594 + 0.728276756*(NIFTY50 Weekly Returns)
Conclusion:
Based on the research methodology and data analysis performed we can conclude that only 16% of Dr. Reddy’s Laboratories weekly returns can be explained by NIFTY50 weekly returns, remaining 84% is dependent on Dr. Reddy’s Laboratories fundamentals and policies.
Since F value is greater than the P value this model is not statistically good and significant. Risk factor of using this model for forecasting Dr. Reddy’s Laboratories weekly returns are very High.