Financial Economics

Individual Assignment

Mohamed Amin

Contents
Task 1:........................................................................................................................ 2
Task 2:........................................................................................................................ 2
Task 3:........................................................................................................................ 9
Task 4:...................................................................................................................... 11
Task 5....................................................................................................................... 12
Task 6: Article Review............................................................................................... 13
References............................................................................................................ 15

Task 1:
I.

Positive and strong correlation

1 | Page

Financial Economics

Individual Assignment

Mohamed Amin

CIMB stock price and Maybank stock price with correlation of 0.84954
II.

Negative and strong correlation

Crude oil and USD exchange to EURO with correlation of -0.80176

III.

Nearly no correlation

S&P 500 and Barrick Gold Corporation (ABX) with correlation of -0.07067

Task 2:
I.

Explanation

CIMB Group Hollings Berhad Stock Price

CIMB Group Holdings Berhad is an investment company that delivers a variety of banking
services such as lending, deposit, wealth management, remittance, and other commercial services
in Malaysia, Indonesia, Singapore, Thailand, Brunei, Myanmar, Vietnam, and Cambodia. The
company is headquartered in Kuala Lumpur, Malaysia. The security data is collected according
to the Kuala Lumpur Stock Exchange (KLSE). The purpose of this security is to collect equity
(capital) for the company (CIMB Bhd, 2015).
Malayan Bank Barhad Stock Price
Malayan Banking Barhad (MAY) is a banking and financial institution that provide
commercial and Islamic banking services in Malaysia, Singapore, Indonesia, and Philippines.
Some of the services that Maybank provides are included life insurance, stock and broking,
leasing and factoring, house loan discounts, and also property investment. Maybank is a public
listed company. The stock price data that I have collected is based on Kuala Lumpur Stock
Exchange (KLSE). The reason for Maybank to issue stock is to raise capital for future purposes
(Malayan Bhd, 2015).

Crude Oil Price

2 | Page

Financial Economics

Individual Assignment

Mohamed Amin

Crude oil price is a measurement of spot price of oil measured in barrels. The most
commonly crude oil prices are quoted from the West Texas Intermediate or the Brent Blend. Also
OPEC basket price and the NYMEX future prices are cited as well. The data I have used in this
paper is based on the NYMEX (New York Mercantile Exchange) future price of crude oil. The
NYMEX gives a forecasted future price of crude oil which is very close to the actual price of the
crude oil price (Amadeo, 2015).
USD Exchange to EURO
The fourth data is the currency trading of US Dollar (USD) exchange to Euro (EUR). The
currency pair shows how many euro are needed to purchase one US dollar (the base currency).
The data is based on the foreign exchange market in which foreign currencies are bought and
sold. The purpose of these currency pair trading is to facilitate the purchasing power between
countries. It is also aimed to make profit between selling and buying of these two currencies
(Chand, 2015).
S&P 500
S&P 500 stands for Standard and Poor 500. S&P 500 is a financial index that consists of 500
most broadly purchased stocks from 500 different companies on New York Stock Exchange
(NYSE). It reflects the risk and return of all large cap companies. It is also used a representation
for all the total stock in the market. The S&P 500 encourages the fact to represent the companies
in the economy rather than a specific sector. The S&P 500 represent industries such as:
information technology, financial, energy, industrials, materials, utilities, and telecommunication
services. There are criteria and conditions for companies that are interested in joining S&P 500
(Amadeo, 2015).
Barrick Gold Corporation (ABX)
Barrick Gold Corporation (ABX) is the largest gold mining company on the planet that
headquartered in Toronto, Canada. ABX has four business sites that located in Africa, Australia,
North America, and also South America. Barrack is currently undertaking mining projects in
Papua New Guinea, the United States, Canada, Australia, Peru, Chile, Russia, South Africa,
Argentina and Tanzania. In 2013, ABXs mineral reserves were 104.1 million ounces of gold,

3 | Page

Financial Economics

Individual Assignment

Mohamed Amin

888 million ounces of silver with gold reserves, and also 14 billion pounds of copper. The stock
price data is collected from the market of KLSE (Reuters.com, 2015).
II.

Historic Data
1. CIMB Share Price

Date

CIMB Stock Price

1/12/2015
1/9/2015
1/8/2015
1/7/2015
1/6/2015
1/5/2015
1/2/2015
12/31/2014
12/30/2014
12/29/2014
12/26/2014
12/24/2014
12/23/2014
12/22/2014
12/19/2014
12/18/2014
12/17/2014
12/16/2014
12/15/2014
12/12/2014
12/11/2014
12/10/2014
12/9/2014
12/8/2014
12/5/2014
12/4/2014
12/3/2014
12/2/2014
12/1/2014
11/28/2014
11/27/2014

5.33
5.33
5.27
5.35
5.46
5.56
5.56
5.55
5.57
5.54
5.51
5.55
5.6
5.54
5.54
5.46
5.38
5.45
5.53
5.5
5.47
5.41
5.47
5.52
5.52
5.58
5.79
5.65
5.82
5.81
5.8

4 | Page

Financial Economics

Individual Assignment

Mohamed Amin

2. MALAYAN BANK
Date

Maybank Stock price

1/12/2015
1/9/2015
1/8/2015
1/7/2015
1/6/2015
1/5/2015
1/2/2015
12/31/2014
12/30/2014
12/29/2014
12/26/2014
12/24/2014
12/23/2014
12/22/2014
12/19/2014
12/18/2014
12/17/2014
12/16/2014
12/15/2014
12/12/2014
12/11/2014
12/10/2014
12/9/2014
12/8/2014
12/5/2014
12/4/2014
12/3/2014
12/2/2014
12/1/2014
11/28/2014
11/27/2014

8.6
8.62
8.64
8.69
8.9
9.14
9.17
9.1
9.18
9.07
9.01
9
8.87
8.78
8.63
8.51
8.27
8.6
8.82
8.84
8.88
8.88
8.89
8.85
8.89
8.99
9.24
9.14
9.46
9.55
9.6

3. Crude Oil
Date

Crude oil price

7-Dec-14
8-Dec-14
9-Dec-14
10-Dec-14
11-Dec-14

64.81
63.21
63.98
60.16
60.19
5 | Page

Financial Economics

Individual Assignment

12-Dec-14
14-Dec-14
15-Dec-14
16-Dec-14
17-Dec-14
18-Dec-14
19-Dec-14
21-Dec-14
22-Dec-14
23-Dec-14
24-Dec-14
25-Dec-14
26-Dec-14
28-Dec-14
29-Dec-14
30-Dec-14
31-Dec-14
1-Jan-15
2-Jan-15
4-Jan-15
5-Jan-15
6-Jan-15
7-Jan-15
8-Jan-15
9-Jan-15

Mohamed Amin

58.08
56.86
56.26
56.26
56.79
54.36
57.13
57.33
55.26
57.12
55.84
55.92
54.73
55.19
53.16
54.12
53.27
54.56
52.69
52.22
50.04
47.93
48.65
48.79
48.91

4. USD to EURO Exchange Rate

Date

USD to EURO
7-Dec-14
8-Dec-14
9-Dec-14
10-Dec-14
11-Dec-14
12-Dec-14
14-Dec-14
15-Dec-14
16-Dec-14
17-Dec-14
18-Dec-14
19-Dec-14
21-Dec-14
22-Dec-14

0.8134
0.8121
0.8073
0.8011
0.8069
0.8025
0.8023
0.8037
0.7993
0.8106
0.8138
0.8178
0.818
0.8181
6 | Page

Financial Economics

Individual Assignment

23-Dec-14
24-Dec-14
25-Dec-14
26-Dec-14
28-Dec-14
29-Dec-14
30-Dec-14
31-Dec-14
1-Jan-15
2-Jan-15
4-Jan-15
5-Jan-15
6-Jan-15
7-Jan-15
8-Jan-15
9-Jan-15

Mohamed Amin

0.8214
0.8204
0.8192
0.8211
0.8218
0.8228
0.8222
0.826
0.8271
0.8332
0.8371
0.8377
0.8422
0.8451
0.8479
0.8445

5. S&P 500
Date
1/26/2015
1/23/2015
1/22/2015
1/21/2015
1/20/2015
1/16/2015
1/15/2015
1/14/2015
1/13/2015
1/12/2015
1/9/2015
1/8/2015
1/7/2015
1/6/2015
1/5/2015
1/2/2015
12/31/2014
12/30/2014
12/29/2014
12/26/2014
12/24/2014
12/23/2014
12/22/2014

Close
2057.09
2051.82
2063.15
2032.12
2022.55
2019.42
1992.67
2011.27
2023.03
2028.26
2044.81
2062.14
2025.9
2002.61
2020.58
2058.2
2058.9
2080.35
2090.57
2088.77
2081.88
2082.17
2078.54
7 | Page

Financial Economics

Individual Assignment

12/19/2014
12/18/2014
12/17/2014
12/16/2014
12/15/2014
12/12/2014
12/11/2014
12/10/2014
12/9/2014
12/8/2014
12/5/2014

Mohamed Amin

2070.65
2061.23
2012.89
1972.74
1989.63
2002.33
2035.33
2026.14
2059.82
2060.31
2075.37

6. Barrick Gold Corporation (ABX)

Date
1/26/2015
1/23/2015
1/22/2015
1/21/2015
1/20/2015
1/16/2015
1/15/2015
1/14/2015
1/13/2015
1/12/2015
1/9/2015
1/8/2015
1/7/2015
1/6/2015
1/5/2015
1/2/2015
12/31/2014
12/30/2014
12/29/2014
12/26/2014
12/24/2014
12/23/2014
12/22/2014
12/19/2014
12/18/2014
12/17/2014
12/16/2014

Close
12.69
12.43
12.79
12.74
12.53
11.75
11.37
10.41
10.68
11.33
10.99
10.81
11.12
11.27
10.9
10.91
10.75
10.86
10.48
10.58
10.31
10.17
10.32
10.83
11.09
10.76
10.32
8 | Page

Financial Economics

Individual Assignment

12/15/2014
12/12/2014
12/11/2014
12/10/2014
12/9/2014
12/8/2014
12/5/2014

Mohamed Amin

10.45
11.47
11.82
11.94
12.06
11.54
11.56

Task 3:
I.

Pearsons correlation coefficient

Data
CIMB and Malayan Bank
Crude Oil and USD exchange to Euro
S&P 500 and ABX Stock price
II.

Standard deviation

Positive
Correlated
Negative
Correlated
Almost No
Correlation

III.

Correlation Coefficient
0.84954
-0.80176
-0.07067

Asset/Security/Index
CIMB Stock price
MAYBANK stock price
Crude oil
USD exchange to EURO
S&P 500
Barrick Gold Corporation (ABX)

Standard Deviation
0.138
0.300
4.309
0.014
31.468
0.769

Scatter plot
a) CIMB and MAYBANK share price

9 | Page

Financial Economics

Individual Assignment

Mohamed Amin

Positive Correlated Assets

10
9.5
9

MAYBANK

8.5
8
7.5
5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

CIMB

b) Crude oil and USD exchange to EURO

Negative Correlated

USD TO EURO

0.86
0.85
0.84
0.83
0.82
0.81
0.8
0.79
0.78
0.77
46

48

50

52

54

56

58

60

62

64

66

CRUDE OIL

c) S&P 500 and Barrick Gold Corporation (ABX)

10 | P a g e

Financial Economics

Individual Assignment

Mohamed Amin

Nearly No Correlation
14
12
10
8

Barrick Gold Corporate

6
4
2
0
1960

1980

2000

2020

2040

2060

2080

2100

S&P 500

Task 4:
i.

Positive and Strong Correlation

When two assets are positively correlated it means that both assets move at the same

direction (they both increase and decrease at the same time). The correlation between CIMB
stock price and Maybank is 0.84954 which is strong positive. This is because the two companies
belong to the same industry (which is banking) and they are both are settled in Malaysia.
Normally companies in the same industry are positively correlated because they are affected by
the same factors and events (Faulkenberry, 2015).
ii.

Negative and Strong Correlation

If two assets have a negative correlation, it means that one asset increases in price and the

other one decreases in price. Crude oil and USD exchange rate are negatively correlated. Many
economists and experts have mentioned several reasons for the reason.
Radhames A. Lizardo and Andre V. Mollick explained the reason behind the negative
correlation between these two commodities. They claimed that high purchase of oil by the US

11 | P a g e

Financial Economics

Individual Assignment

Mohamed Amin

causes the US dollar supply to increase in foreign exchange markets which pushes the value of
dollar to decrease and also the price of oil increases (Lizardo and Mollick, 2009).
On another research, Christian Grisse concluded that changes in US dollar exchange rates
have effect on oil prices because of the USAs global demand for oil. He added that the US has
an influence on price setting because oil price is measured by US dollar in international markets.
He also stressed that when US dollar depreciates then the oil prices increases with respect to the
other country which consumes oil (Grisse, 2010).
iii.

Nearly no Correlation
Nowadays it is very hard to find two assets with zero correlation, but there are assets with

nearly have no correlation. This shows that the two assets have no or little impact on each other.
An example of nearly no correlated assets are S&P 500 and Barrick Gold Corporation (ABX).

Task 5
i.

Positive and Strong Correlation

SDP2=P12*SD12+ P22*SD22+2*P1*P2*cov(P1,P2)
=0.52*0.1382+0.52*0.302+2*0.5*0.5*0.84954
SDP=0.6723
ii.

Negative and Strong Correlation

SDP2=P12*SD12+ P22*SD22+2*P1*P2*cov(P1,P2)
=0.52*4.3092+0.52*0.0142+2*0.5*0.5*(-0.80176)
SDP =2.0594
iii.

Nearly no Correlation

SDP2=P12*SD12+ P22*SD22+2*P1*P2*cov(P1,P2)
=0.52*31.4682+0.52*0.7692+2*0.5*0.5*(-0.07067)
SDP =15.738

12 | P a g e

Financial Economics

Individual Assignment

Mohamed Amin

Task 6: Article Review

The article Oil price fluctuations and U.S. dollar exchange rates, by Radhames A.
Lizardo and Andre V. Mollick published by Elseiver BV discusses the relationship between oil
price and USD exchange rate for the past half century. The authors mentioned that when oil price
goes up it leads a depreciation to US dollar against to net oil exporter countries such as Canada,
Mexico, and Russia. The article compared the trend of oil price against US dollar exchange rate
from 1970s to 2008.
The objective of the study is to find the influences of oil price has on the value of US
dollar in the long and short run. And the model that the authors used is the flexible price
monetary model, which is an approach to explain the relation of exchange rate variations.
The US dollar acted as a reserve currency in many states during the Breton woods
system from 1944 to 1973. But currently US dollar is facing challenges. For the past years, US
dollar has reached its highest value in 2001 and since then it has been falling. The US dollar has
lost its value to oil exporting countries by 37% against Canadian dollar, 15% against Japanese
Yen, 65% against the Euro, and 41% against Pound. On the other hand, the US imports of oil is
increasing constantly since 1985 reaching 13 million barrels a day. This is because crude oil is a
fundamental commodity to all the US production and industrial activities.
The data that the authors used for their study contained of monthly data observations of
US dollar exchange against foreign currencies. The exchange rate data were cited from
International Financial Statistics (IFS) of the International Money Fund (IMF). On the other
hand, the oil price data were collected from Federal Reserve Bank of Saint Louis.
At the end of the research the authors found out that the fluctuation of oil price has a
significant influence on the value of USD in the international exchange market. The authors
reasoned for the relationship between the oil price and USD value.
The US is the top oil importer and oil is the driver of the economy which involves all
industrial and household activities. When US purchases oil in the international market, the
supply of dollar in the international forex market increases relative to the oil exporting
currencies. This would cause the value of the USD to fall and the price of the oil to go up.

13 | P a g e

Financial Economics

Individual Assignment

Mohamed Amin

This relationship between the oil price and the value of the USD can be explained by the
basic theory of supply and demand. When the supply of USD dollar increases its value decreases.
And oppositely as the value of the USD falls then the price of the oil goes up. The shocks of oil
price was reasoned for economic recessions, financial crisis, unemployment, high inflation, and
trade deficit. All this happened in the last century more than once.
All in all, the authors concluded that the oil price has a significant influence on the value
of the USD against the oil exporting countries.
In order to find out the relationship between the oil price and US dollar exchange, I
conducted a research as well. I selected dollar exchange to Euro, and I found out that the oil price
and US dollar value have negative correlation of -0.80176. This shows that when the price of oil
goes up the value of dollar falls.

14 | P a g e

Financial Economics

Individual Assignment

Mohamed Amin

References
Amadeo, K. (2015). How Crude Oil Prices Affect the You and the Economy. [online] About.com
News & Issues. Available at:
http://useconomy.about.com/od/economicindicators/p/Crude_Oil.htm [Accessed 1 Feb.
2015].
Amadeo, K. (2015). How to Use the S&P 500 to Make Money. [online] About.com News &
Issues. Available at: http://useconomy.about.com/od/glossary/g/SP500.htm [Accessed 1 Feb.
2015].
Chand, S. (2015). Foreign Exchange Market: Meaning, Functions and Kinds. [online]
Yourarticlelibrary.com. Available at: http://www.yourarticlelibrary.com/macroeconomics/balance-of-payment/foreign-exchange-market-meaning-functions-andkinds/30428/ [Accessed 1 Feb. 2015].
CIMB Bhd, (2015). CIMB GROUP HOLDINGS BHD (CIMB:Kuala Lumpur): Company
Description - Businessweek. [online] Businessweek.com. Available at:
http://www.bloomberg.com/research/stocks/snapshot/snapshot_article.asp?
ticker=CIMB:MK [Accessed 31 Jan. 2015].
Faulkenberry, K. (2015). Asset Correlation Definition, Examples, and Problems. [online]
Arborinvestmentplanner.com. Available at: http://arborinvestmentplanner.com/assetcorrelation-definition-examples-problems/ [Accessed 2 Feb. 2015].
Grisse, C. (2010). What Drives the Oil-Dollar Correlation?. Federal Reserve Bank of New York,
[online] pp.1-2. Available at:
https://www.aeaweb.org/aea/2011conference/program/retrieve.php?pdfid=650 [Accessed 2
Feb. 2015].
Lizardo, R. and Mollick, A. (2009). Oil price fluctuations and U.S. dollar exchange rates. Energy
Economics, [online] 32(2), pp.399408. Available at:
http://www.sciencedirect.com/science/article/pii/S0140988309001881 [Accessed 2 Feb.
2015].
Malayan Bhd, (2015). MAY Profile & Executives - Malayan Banking Bhd. [online] Bloomberg.
Available at: http://www.bloomberg.com/quote/MAY:MK/profile [Accessed 31 Jan. 2015].
15 | P a g e

Financial Economics

Individual Assignment

Mohamed Amin

Reuters.com, (2015). Barrick Gold Corp (ABX) Company Profile | Reuters.com. [online]
Reuters.com. Available at: http://www.reuters.com/finance/stocks/companyProfile?
rpc=66&symbol=ABX [Accessed 1 Feb. 2015].

16 | P a g e