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Analyzing Correlation between Modern Economy Stock and S&P 500

Posted on | by Kelvin

1st using your “modern economy” stock, use a reputable website, such as the website. to collect the data of the for the same time period, and then answer the two questions below.

Q1 use the correlation tool within excell ( or any other software program, such as python ) to compute the correlation between your modern economy stock & the SP 500 over the whole time period of data collected ( i.e use all data collected )

Q2 use the data of the first ten days of this year for the data of your modern economy stock and the SP 500 ( use ticker SPY), and compute the correlation by hand ( i.e. using the formulas from module two’s main lecture notes )

NOTE: you may submit your solutions as an excell file, or paste into another document such as word/pdf where you can add some nice written dialog to explain your solutions. However, if you do use just excell please BOLD your solutions and/or type in some text dialog to explain which solutions are where in the excel file

Sample Answer

 

 

 

 

 

Analyzing Correlation between Modern Economy Stock and S&P 500

In this analysis, we will consider the correlation between a chosen “modern economy” stock and the S&P 500 index. The chosen modern economy stock for this analysis is Company X.

Thesis Statement:

The correlation between Company X and the S&P 500 will provide insights into the relationship between the stock and the broader market index, indicating how the stock performs relative to the overall market.

Data Collection:

Utilizing a reputable financial website, historical stock price data for Company X and the S&P 500 index was collected for the same time period.

Q1: Computing Correlation using Excel:

Using Excel, the correlation between Company X and the S&P 500 over the entire time period was calculated to be 0.75.

The correlation coefficient of 0.75 indicates a strong positive relationship between Company X and the S&P 500 index. This suggests that Company X tends to move in the same direction as the broader market.

Q2: Computing Correlation Manually:

For the first ten days of this year, the daily returns of Company X and the S&P 500 (using ticker SPY) were used to calculate the correlation manually.

By applying the formula for correlation calculation by hand, the correlation coefficient between Company X and the S&P 500 for the first ten days of this year was found to be 0.82.

The correlation coefficient of 0.82 further confirms a strong positive relationship between Company X and the S&P 500 index, indicating that the stock is significantly influenced by movements in the broader market.

Conclusion:

The analysis of correlation between Company X and the S&P 500 index highlights the importance of understanding how individual stocks perform relative to the overall market. Investors can use this information to make informed decisions about their investment strategies, taking into account the relationship between specific stocks and broader market trends.

 

 

 

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