Regression Analysis of Weekly Returns between NIFTY50 and SpiceJet Ltd.
Title- Relationship of SpiceJet Limited with Nifty 50
Author- Siddhi R. Dhole
Introduction- SpiceJet is an Indian budget airline headquartered in Gurgaon, Haryana. It is the second-largest airline in India by number of domestic passengers carried, with a market share of 13.6% as of March 2019. The airline operates 630 daily flights to 64 destinations, including 54 Indian and 15 international destinations from its bases at Delhi and Hyderabad.
Objectives- Calculation of Beta of Spicejet Limited & its significance
Literature review-
1. Survivor Stocks
Survivor stocks tend to be small-value stocks that exhibit high profitability and invest conservatively. Surprisingly, survivor stocks tend to be loser stocks with negative exposure to the momentum factor. Further the volatility of the survivor stocks portfolio is less exposed to tail risks and responds less to shocks in the innovation process. (Grobys, 2022)
2. Stock index
Cointegrating relationships between each combination of series examined. The analysis reveals a higher level of causality than found in previous research. Bidirectional Granger causality for every index pairwise combination examined. (Jalbert, 2015)
Data collection- The closing price data of Nifty50 and Spicejet Limited was taken from https://finance.yahoo.com (Yahoo Finance) for the time period 1ST APRIL 2022 to 31ST MARCH 2023.
From the available data, the closing rates of all the Fridays in the year was sorted to find out weekly returns for both Nifty as well as Spicejet Limited then the weekly returns were calculated for both.
Weekly return = (B3-B2)/B2 *(100)
Where B3 represent week closing price and B2 is previous week closing price.
Once the data is calculated, weekly return column for NIFTY50 is considered as “X” variable and the weekly returns column for Spicejet Limited is considered as “Y” variable.
Data Analysis- Utilizing the Regression Add-on in Microsoft Excel Data Analytics tool below values was acquired
R Square = R^2 = 0.120664
a = -1.124098841
b = 1.099202138
F = 6.449407676
P value = 0.014465934
N= 49
Below expression shows the relationship model between Spicejet Limited and NIFTY 50 weekly returns:
We can write the equation in the form of Y = a + b(X)
Where, Y = Spicejet Ltd
X = Nifty-50 Returns
a = intercept and b = slope
Spicejet Ltd Weekly Return = -1.124098841 + 1.099202138*(NIFTY50 Weekly Return) (2.539568403)
Conclusion- The above equation in the Data analysis explains us the relationship between X (Nifty-50 Returns) and Y (Spicejet Ltd).
If X rises by 1 unit, then Y will rise by 1.1 units and vice versa.
Figure in bracket just below the equation i.e. (2.539568403) is the value for t-stat for b for which the p-value is 0.014465934, which is less than 0.05 implies that b is not statistically significant at 5% significant level.
R2 is 0.120663782 which means 12% of Y is explained by X and remaining 88% is error.
The value of F is 6.449407676 and the p-value for which is 0.014465934, which is less than 0.05, which means the overall model is statistically significant at 5% significant level or 95% confidence level.
As Beta 1.099202 is greater than 1, the company is good for short-term investments.
References-
1. Klaus Grobys, 2022. “On Survivor Stocks in the S&P 500 Stock Index,” JRFM, MDPI, vol. 15(2), pages 1-24, February.
2. Terrance Jalbert, 2015. “Currency-Adjusted Stock Index Causality,” The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(5), pages 83-91.