Regression analysis of weekly returns between NIFTY50 and
ITC Limited.
Author: Ishika Dubey MBA (Finance)
Introduction:
ITC Limited is an Indian conglomerate company headquartered in Kolkata. ITC has a diversified presence across industries such as FMCG, hotels, software, packaging, paperboards, specialty papers and agribusiness. The company has 13 businesses in 5 segments. It exports its products in 90 countries. Its products are available in 6 million retail outlets.
Objective:
To understand the regression relationship between averages weekly returns of NIFTY50 and ITC Limited.
Data Collection:
The closing price data of Nifty50 and ITC Limited 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 ITC Limited. 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 ITC Limited is considered as Y variable.
The Model and 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:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.568501
R Square 0.323194
Adjusted R Square 0.306274
Standard Error 2.849717
Observations 42
ANOVA
df SS MS F Significance F
Regression 1 155.1179 155.1179 19.10111 8.57E-05
Residual 40 324.8355 8.120888
Total 41 479.9535
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -0.20309 0.444008 -0.45739 0.649864 -1.10046 0.694288 -1.10046 0.694288
X Variable 1 0.898223 0.20552 4.370481 8.57E-05 0.482851 1.313595 0.482851 1.313595
Y=B+AX
A= -0.20309
B= 0.898223
Y= -0.20309 + 0.898223
t Stat= 0.695133
CONCLUSION:
Based on the research methodology and data analysis performed we can conclude that only 32% of ITC’s weekly returns can be explained by NIFTY 50 weekly returns, remaining 68% is dependent on ITC Ltd 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 ITC’s weekly returns are very High.