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Calculation of measures of central tendency and dispersion for the
monthly stock returns of Reliance Industries Ltd for years 2007 and
2008 as listed in Bombay Stock Exchange.
3
Table of Contents
1 Problem Statement............................................................................................................5
2 Data Collection2...............................................................................................................6
3 Calculation of measures of central tendency....................................................................8
3.1 Computation of Arithmetic Mean..............................................................................8
3.2 Computation of Median.............................................................................................9
3.3 Computation of Mode..............................................................................................10
3.4 Computation of Standard Deviation........................................................................11
3.5 Relative Measures of Dispersion.............................................................................12
3.5.1 Coefficient of Range.........................................................................................12
3.5.2 Coefficient of Quartile Deviation.....................................................................13
3.5.3 Coefficient of Mean Deviation.........................................................................13
3.5.4 Coefficient of Variations...................................................................................13
4 Determination of coefficient of correlation....................................................................14
4.1 Computation using percentage as units....................................................................15
4.1.1 Computation of Mean and Standard Deviation................................................15
4.1.2 Computation of Covariance..............................................................................16
4.1.3 Computation of simple and multiple correlation coefficients...........................17
4.2 Correlation Validity Analysis..................................................................................17
Appendix I – References / Bibliography..........................................................................18
Table of Tables
Table 1: Reliance Industries Ltd. quarterly revenues, PAT & Share prices data................6
Table 2: Reliance Industries Ltd. monthly share prices data for 2007 & 2008...................7
Table 3: Arithmetic Mean Computation..............................................................................8
Table 4: Ascending order presentation of share prices of Reliance Industry......................9
Table 5: Calculating standard deviation using Mean.........................................................11
Table 6: Calculating standard deviation using assumed mean..........................................12
Table 7: Calculation of Mean Deviation............................................................................13
Table 8: Correlation determination with all variables in percentages...............................15
Table 9: Average Joint Deviation Calculations (variables: changes in %)........................16
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1 Problem Statement
The BSE Sensex or the NSE Nifty indices reflect the performance of the countries
bourses. For the Reliance Industries Limited that comprise the Sensex & Nifty collect the
following data for a contiguous period of 5 years on a quarterly basis:
a) Changes in Revenues
b) Changes in PAT
c) Share price as on 31st March 07 & 08
A) Calculate the following measures of central tendency & dispersion for the years 2007
& 2008 for the monthly stock returns of Reliance Industries Limited:
a) Mean, Median & Mode
b) Standard Deviation
c) Quartiles
B) Determine the coefficient of correlation between change in revenue & PAT and the
change in prices for last five years. Determine the validity of the correlation and
comment on your findings.
5
2 Data Collection2
Table 1: Reliance Industries Ltd. quarterly revenues, PAT1 & Share prices data2
Change Change
Change in Change Change in Share in
Revenues in PAT in Share Price Revenue Change
Share (x2) (C. (x3) (C. Price (x1p) s (x2p) in PAT
3 4
Revenues PAT Price5 Rs)6 Rs) (x1) (Rs) (%) (%) (x3p) (%)
Calendar Quarter
Year Ending
Dec-08 32,226.00 3,501.00 1,230.25 -12,712.00 -621.00 -716.10 -36.79 -28.29 -15.07
Sep-08 44,938.00 4,122.00 1,946.35 3,133.00 12.00 -146.90 -7.02 7.49 0.29
Jun-08 41,805.00 4,110.00 2,093.25 4,230.00 198.00 -171.25 -7.56 11.26 5.06
2008 Mar-08 37,575.00 3,912.00 2,264.50 2,744.00 -4,167.00 -616.55 -21.40 7.88 -51.58
Dec-07 34,831.00 8,079.00 2,881.05 2,620.00 4,242.00 584.85 25.47 8.13 110.56
Sep-07 32,211.00 3,837.00 2,296.20 4,050.00 573.00 595.90 35.05 14.38 17.56
Jun-07 28,161.00 3,264.00 1,700.30 2,181.00 411.00 331.95 24.26 8.39 14.41
2007 Mar-07 25,980.00 2,853.00 1,368.35 -534.00 54.00 98.00 7.71 -2.01 1.93
Dec-06 26,514.00 2,799.00 1,270.35 -1,982.00 90.00 99.30 8.48 -6.96 3.32
Sep-06 28,496.00 2,709.00 1,171.05 3,930.00 162.00 112.30 10.61 16.00 6.36
Jun-06 24,566.00 2,547.00 1,058.75 -63.00 45.00 262.50 32.97 -0.26 1.80
2006 Mar-06 24,629.00 2,502.00 796.25 6,281.00 726.00 -93.40 -10.50 34.23 40.88
Dec-05 18,348.00 1,776.00 889.65 -2,591.00 -705.00 96.15 12.12 -12.37 -28.42
Sep-05 20,939.00 2,481.00 793.50 2,961.00 171.00 151.60 23.62 16.47 7.40
Jun-05 17,978.00 2,310.00 641.90 -337.00 18.00 95.95 17.57 -1.84 0.79
2005 Mar-05 18,315.00 2,292.00 545.95 216.00 201.00 12.15 2.28 1.19 9.61
Dec-04 18,099.00 2,091.00 533.80 1,639.00 339.00 15.60 3.01 9.96 19.35
Sep-04 16,460.00 1,752.00 518.20 1,833.00 315.00 88.60 20.62 12.53 21.92
Jun-04 14,627.00 1,437.00 429.60 42.00 18.00 -108.45 -20.16 0.29 1.27
2004 Mar-04 14,585.00 1,419.00 538.05 1,862.00 45.00 -34.95 -6.10 14.63 3.28
2003 Dec-03 12,723.00 1,374.00 573.00
Note1: The initial objective was to collect the latest possible data on a financial year. Because the last data for
financial year 2008-2009 ends in March 2009 for which the data was not available so have taken calendar years
between 2004 & 2008.
Note2: 1 crore of rupees = 10 million of rupees.
1
PAT: Profit After Tax (Net Profit)
2
Source of Data: Partly from CapitalLine database and partly from Moneycontrol.com/Asian CERC
http://www.moneycontrol.com/india/stockpricequote/diversified/relianceindustries/RI.
3
Revenues stated in units of “Crores of Rupees”
4
PAT stated in units of “Crores of Rupees”
5
Closing share price of Reliance Industry in BSE for the last trading day of the month stated in units of
“Rupees”
6
Units: C. Rs = Crores of Indian Rupees
6
Table 2: Reliance Industries Ltd. monthly share prices data7 for 2007 & 2008
7
Source of Data: Moneycontrol.com/Asian CERC
http://www.moneycontrol.com/india/stockpricequote/diversified/relianceindustries/RI.
8
Share prices tabulated are in Rupees are the closing price of the last trading day of the respective months
in the BSE.
7
3 Calculation of measures of central tendency
Table 3: Arithmetic Mean Computation
Share Prices between Jan 2007 and Dec 2008
2007(Rs.
Months 2008 (Rs.) ) d2008 = x2008 - A2008 d2007 = x2007 - A2007
January 2,479.50 1,364.60 386.25 -594.90
February 2,458.25 1,354.60 365.00 -604.90
March 2,264.50 1,368.35 171.25 -591.15
April 2,614.85 1,560.10 521.60 -399.40
May 2,401.65 1,760.20 308.40 -199.30
June 2,093.25 1,700.30 0.00 -259.20
July 2,206.20 1,892.30 112.95 -67.20
August 2,136.75 1,959.50 43.50 0.00
September 1,946.35 2,296.20 -146.90 336.70
October 1,370.75 2,782.55 -722.50 823.05
November 1,131.60 2,850.75 -961.65 891.25
December 1,230.25 2,881.05 -863.00 921.55
Σx = 24,333.90 23,770.50 -785.10 256.50
Assumed Mean for 2008, A2008 = 2093.25 (share price value for June 2008)
Assumed Mean for 2007, A2007 = 1959.50 (share price value for August 2007)
Mean = (Σx/N)
Mean = A + (Σd/N)
Σd2008 = -785.10
Σd2007 = 256.50
A2008 = 2093.25
A2007 = 1959.50
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x’2008 = 2093.25 + (-785.1)/ 12 = Rs. 2027.83
x’2007 = 1959.50 + (256.5)/ 12 = Rs. 1980.88
The arithmetic mean share price of Reliance Industry that would represent the range of
its prices for the years 2007 & 2008 are Rs. 1980.88 and Rs. 2027.83 respectively.
Monthly
Share
2008 (Rs) Prices 2009 (Rs)
Position
Number
1,131.60 1 1,354.60
1,230.25 2 1,364.60
1,370.75 3 1,368.35
1,946.35 4 1,560.10
2,093.25 5 1,700.30
2,136.75 6 1,760.20
2,206.20 7 1,892.30
2,264.50 8 1,959.50
2,401.65 9 2,296.20
2,458.25 10 2,782.55
2,479.50 11 2,850.75
2,614.85 12 2,881.05
24,333.90 Σx = 23,770.50
Total number of variables (N) = 12. Since this is a discrete series data, the positional
averages, quartiles, are computed on “N+1” data.
Q2 = x(6)*0.5 + x(7)*0.5
Q1 = x(3)*0.25 + x(4)*0.75
Q3 = x(9)*0.75 + x(10)*0.25
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For 2008
Value of 6th variable, x(6) = 2136.75
Value of 7th variable, x(7) = 2206.20
Median (Q2) = (2136.75 * 0.5) + (2206.20 * 0.5) = 1068.38 + 1103.10
For 2007
Value of 6th variable, x(6) = 1760.2
Value of 7th variable, x(7) = 1892.3
Median (Q2) = (1760.2 * 0.5) + (1892.3 * 0.5) = 880.1 + 946.15
The median share price of Reliance Industry that would represent the range of its prices
for the years 2007 & 2008 are Rs. 2171.48 and Rs. 1826.25 respectively.
The data presented is a discrete series data with no recurring frequency. So the mode (as
a measure of central tendency) cannot be computed on this data.
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3.4 Computation of Standard Deviation
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Calculation using Step Deviation
Assumed Mean, A2008 = 2093.25
Assumed Mean, A2007 = 1959.50
Step, i = 100
d=x–A
d’ = (x – A)/i
Assume
Standard Deviation using step deviation method, σ= sqrt[( Σd’^2) / N – (Σd’/N)^2] * i
CR9 = (H10-L11)/(H+L)
9
CR stands for coefficient of Range
10
H stands for the highest value variable in the series
11
L stands for the lowest value variable in the series
12
3.5.2 Coefficient of Quartile Deviation
CQD12 = (Q313-Q114)/(Q3+Q1)
Q12008 = 1802.45
Q32008 = 2415.80
Q12007 = 1512.16
Q32007 = 2417.79
CMD15 =( Σ (|x-x’|) / N) / x’
Table 7: Calculation of Mean Deviation
Months |x-x’|2008 |x-x’|2007
January 451.68 616.28
February 430.43 626.28
March 236.68 612.53
April 587.03 420.78
May 373.83 220.68
June 65.43 280.58
July 178.38 88.57
August 108.93 21.37
September 81.47 315.33
October 657.08 801.68
November 896.23 869.88
December 797.58 900.18
Σx = 4,864.70 5,774.10
12
CQD stands for coefficient of Quartile Deviation
13
Q3 stands for the 3rd quartile value variable in the series
14
Q1 stands for the 1st quartile value variable in the series
15
CMD stands for coefficient of Mean Deviation
13
CV16 = (σ17/x’)*100
σ2008 = 487.795
σ2007 = 560.438
x’2008 = 2027.83
x’2007 = 1980.88
Based on the above data, it can be inferred that the stock price of Reliance Industries had
about 24.055% variation in the year 2008 as compared to 28.292% variation in the year
2007. Based on the comparisons between the years 2007 & 2008, it is also inferred that
the stock price variations were more consistent in 2008 than 2007.
The two independent variables are represented as x2 (change in revenues in Rs.) and x3
(change in PAT in Rs.). The dependent variable is represented as x1 (change in stock
price in Rs.). The analysis uses two sets of calculations: one for the absolute values in Rs
(where the units have different multiples of Rs.) and other for the absolute values in
percentages.
Assuming that the three variables have linear correlation, we use the Karl Pearson’s
product moment correlation coefficient (r) to determine if there is a relation between
change in revenues, change in PAT to change in stock prices.
Linear simple correlation coefficient between two variables “x” and “y” is established by
the following Pearson’s formula.
rxy18 = Cov19(x,y)/(σxσy)
Cov (x,y) = [ Σ{(x-x’)*(y-y’)}] / n
Since there are 3 variables involved in the problem statement (two independent and one
dependent), the following linear multiple correlation coefficient formula is used for
determining the correlation value.
16
CV stands for coefficient of variation
17
σ stands for the standard deviation
18
rxy represents a linear simple coefficient correlation value
19
Cov(x,y) represents the covariance between variables “x” & “y”.
14
R1.2320 = sqrt21[ {(r12)^2 + (r13)^2 – 2(r12*r13*r23)} / {1 – (r23)^2} ]
Change
Change in Change in Share
Revenues in PAT Price
(x2) (%) (x3) (%) (x1) (%) x2-x2' x3-x3' x1-x1' (x2'-x2')^2 (x3-x3')^2 (x1-x1')^2
Quarte
Cal r
Year Ending
Dec-08 -36.79 -28.29 -15.07 -33.84 -23.60 -42.50 1,145.40 557.01 1,806.57
Sep-08 -7.02 7.49 0.29 1.94 -8.24 -12.73 3.76 67.96 162.04
Jun-08 -7.56 11.26 5.06 5.70 -3.47 -13.27 32.51 12.07 176.21
2008 Mar-08 -21.40 7.88 -51.58 2.32 -60.11 -27.11 5.39 3,613.67 735.06
Dec-07 25.47 8.13 110.56 2.58 102.02 19.76 6.65 10,407.97 390.40
Sep-07 35.05 14.38 17.56 8.83 9.02 29.33 77.89 81.35 860.54
Jun-07 24.26 8.39 14.41 2.84 5.87 18.55 8.06 34.46 344.00
2007 Mar-07 7.71 -2.01 1.93 -7.57 -6.61 2.00 57.30 43.64 4.01
Dec-06 8.48 -6.96 3.32 -12.51 -5.21 2.77 156.53 27.18 7.66
Sep-06 10.61 16.00 6.36 10.44 -2.18 4.89 109.03 4.73 23.96
Jun-06 32.97 -0.26 1.80 -5.81 -6.74 27.26 33.78 45.39 742.84
2006 Mar-06 -10.50 34.23 40.88 28.68 32.34 -16.21 822.35 1,046.05 262.78
Dec-05 12.12 -12.37 -28.42 -17.93 -36.95 6.41 321.48 1,365.42 41.03
Sep-05 23.62 16.47 7.40 10.91 -1.13 17.91 119.12 1.28 320.61
Jun-05 17.57 -1.84 0.79 -7.40 -7.75 11.86 54.70 60.07 140.73
2005 Mar-05 2.28 1.19 9.61 -4.36 1.08 -3.44 19.03 1.16 11.80
Dec-04 3.01 9.96 19.35 4.40 10.81 -2.70 19.37 116.94 7.30
Sep-04 20.62 12.53 21.92 6.98 13.39 14.91 48.66 179.16 222.37
Jun-04 -20.16 0.29 1.27 -5.27 -7.27 -25.87 27.75 52.81 669.15
2004 Mar-04 -6.10 14.63 3.28 9.08 -5.26 -11.81 82.43 27.67 139.51
Sum
(Σ) = 114.24 111.12 170.71 0.00 0.00 0.00 3,151.20 17,746.01 7,068.57
15
Mean of change in share price, x1’ = 170.71/20 = 8.54%
Quarter
Ending (x2-x2')(x3-x3') (x1-x1')(x2-x2') (x1-x1')(x3-x3')
Dec-08 798.75 1,438.49 1,003.14
Sep-08 -15.98 -24.67 104.94
Jun-08 -19.81 -75.68 46.12
Mar-08 -139.59 -62.96 1,629.81
Dec-07 263.00 50.94 2,015.75
Sep-07 79.60 258.90 264.59
Jun-07 16.67 52.66 108.88
Mar-07 50.01 -15.16 -13.23
Dec-06 65.23 -34.63 -14.43
Sep-06 -22.71 51.11 -10.65
Jun-06 39.15 -158.40 -183.62
Mar-06 927.48 -464.86 -524.29
Dec-05 662.54 -114.85 -236.69
Sep-05 -12.37 195.42 -20.29
Jun-05 57.32 -87.74 -91.94
Mar-05 -4.70 14.99 -3.70
Dec-04 47.60 -11.89 -29.21
Sep-04 93.37 104.02 199.60
Jun-04 38.28 136.27 187.99
Mar-04 -47.76 -107.23 62.13
Σ= 2,876.09 1,144.73 4,494.89
Computation of Covariance
Covariance between x1 & x2, Cov(x1,x2) = 1144.73/20 = 57.2365
Covariance between x1 & x3, Cov(x1,x3) = 4494.89/20 = 224.7445
Covariance between x2 & x3, Cov(x2,x3) = 2876.09/20 = 143.8045
16
4.1.3 Computation of simple and multiple correlation coefficients
Based on the computation of the three linear simple correlations, only 5.9% of the change
in share price is explained by change of revenues. Only 16.1% of the change of share
price is explained by change of PAT. Only 14.8% change of revenues is explained by
change of PAT.
There appears to be a positive linear simple correlation for all the three combinations of
the changes but the data appears to indicate very poor correlation among these changes.
There is also very poor linear multiple correlation between change of revenue and change
of PAT on change of share price as only 17.02% of change in revenues & PAT could be
used to explain the change in share prices of Reliance Industry.
17
Appendix I – References / Bibliography
1. http://www.moneycontrol.com/india/stockpricequote/diversified/reliancein
dustries/10/43/balancesheet/marketprice/RI
2. http://www.moneycontrol.com/stocks/companydetails/histdata.php
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