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NIIT UniversityMBA Finance and Banking 2014-2016
COMPARATIVE STUDY OF RETURNS OF STOCK WITH SECTORAL INDEX, MARKET INDEX and RISK FREE BOND
(Financial Instruments Project)
Submitted byName Roll NoApoorva Sharma P301414CMG4
22Anoop Sharma P301414CMG4
20Adarsh Chhajed P301414CMG4
11Rushikesh Chinderkar
P301414CMG458
Arpit Somani P301414CMG423
1
ContentsIT Industry overview....................................................................................................................................3
Methodology...........................................................................................................................................3
Market Representation...........................................................................................................................3
NIFTY IT Performances............................................................................................................................4
Choice of Stocks.......................................................................................................................................4
Descriptive Analysis.....................................................................................................................................5
Returns on all stocks and indices.............................................................................................................6
Tata Consultancy Services.......................................................................................................................7
Tech Mahindra......................................................................................................................................10
Wipro.....................................................................................................................................................13
Infosys...................................................................................................................................................16
HCL........................................................................................................................................................19
References.................................................................................................................................................22
2
IT Industry overview
Information Technology (IT) industry has played a major role in the Indian economy during the last few years. A number of large, profitable Indian companies today belong to the IT sector and a great deal of investment interest is now focused on the IT sector. In order to have a good benchmark of the Indian IT sector, IISL has developed the Nifty IT sector index. Nifty IT provides investors and market intermediaries with an appropriate benchmark that captures the performance of the IT segment of the market.Companies in this index are those that have more than 50% of their turnover from IT related activities like IT Infrastructure, IT Education and Software Training, Telecommunication Services and Networking Infrastructure, Software Development, Hardware Manufacturer’s, Vending, Support and Maintenance.
Methodology
The Nifty IT index is computed using free float market capitalization method with a base date of Jan 1, 1996 indexed to a base value of 1000 wherein the level of the index reflects total free float market value of all the stocks in the index relative to a particular base market capitalization value. The base value of the index was revised from 1000 to 100 with effect from May 28, 2004. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, new issue of shares etc. without affecting the index value.
Effective May 29, 2015, the index is computed with 10 companies and weights of each company in the index are capped at 25%. At the time of rebalancing of shares/ change in index constituents/ change in investable weight factors (IWFs), the weightage of the index constituent (where applicable) is capped at 25%. Weightage of such stock may increase beyond 25% between the rebalancing periods.
Market Representation
The Nifty IT Index represents about 11.96% of the free float market capitalization of the stocks listed on NSE and 96.66% of the free float market capitalization of the stocks forming part of the IT sector as on March 31, 2015.
The total traded value for the last six months ending March 2015 of all index constituents is approximately 9.48% of the traded value of all stocks on the NSE and 90.10% of the traded value of the stocks forming part of the IT sector.
3
NIFTY IT Performances
Choice of Stocks
The constituents (stocks) have been chosen based on the weightage:
Company NameWeight (%)
Infosys Ltd. 24.77Tata Consultancy Services Ltd. 24.2HCL Technologies Ltd. 16.81Wipro Ltd. 12.83Tech Mahindra Ltd. 11.37
4
Descriptive Analysis
Daily Annual 5 YearsAverage Nifty IT -0.07% -16.62% -68.51%Average Nifty 50 -0.04% -10.02% -41.29%Average G sec 0.01% 1.78% 7.34%Average TCS -0.08% -20.08% -82.77%Average Tech Mahindra 0.02% 5.20% 21.44%Average Wipro -0.04% -11.10% -45.78%Average Infy 0.08% 19.70% 81.23%Average HCL -0.07% -18.01% -74.27%
5
Returns on all stocks and indices
6
Tata Consultancy Services
t-Test: Paired Two Sample for Means
Return TCS Return Nifty IT
Mean
-0.0007966
4 -0.000659424
Variance0.0002496
13 0.000175418Observations 1037 1037
Pearson Correlation0.7362206
56Hypothesized Mean Difference 0Df 1036
t Stat
-0.4086386
9
P(T<=t) one-tail0.3414446
43
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.6828892
85
t Critical two-tail1.9622564
54
Null Hypothesis: the mean of returns of NIFTY IT and TCS are equalWe notice that the two sample mean values (volatility) are -0.00079664 (0.000249613) and -0.000659424 (0.000175418). The two tailed calculated t-statistic is -0.4086 and the highlighted p-value for this test is p= 0.6829. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both NIFTY IT and TCS are equal which means whether we invest in NIFTY IT or TCS for a day the returns are same or similar.
t-Test: Paired Two Sample for Means
Return TCSReturn Nifty
50
Mean
-0.0007966
4-
0.000397436
7
Variance0.0002496
13 0.000109466Observations 1037 1037
Pearson Correlation0.3605999
83Hypothesized Mean Difference 0Df 1036
t Stat
-0.8300352
5
P(T<=t) one-tail0.2033550
38
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.4067100
75
t Critical two-tail1.9622564
54
Null Hypothesis: the mean of returns of NIFTY 50 and TCS are equalWe notice that the two sample mean values (variance) are -0.00079664(0.0002496) and -0.000397436 (0.000109466). The two tailed calculated t-statistic is -0.8300 and the highlighted p-value for this test is p= 0.4067. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both NIFTY 50 and TCS are equal which means whether we invest in NIFTY 50 or TCS for a day the returns are same or similar.
-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%
-15.0000%
-10.0000%
-5.0000%
0.0000%
5.0000%
10.0000%
15.0000%
f(x) = 0.54663322740518 xR² = 0.13089606853902
Return TCS- Nifty 50
8
1. Slope which is also beta is +.5466 that shows that returns TCS is minutely correlated to Nifty 50 returns.
2. Both are positively correlated that shows returns move in same direction.
t-Test: Paired Two Sample for Means
Return TCS Return G sec
Mean
-0.0007966
4 0.000071
Variance0.0002496
13 0.000046
Observations 1037 1037
Pearson Correlation
-0.0349403
1Hypothesized Mean Difference 0Df 1036
t Stat
-1.6053080
1
P(T<=t) one-tail0.0543653
98
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.1087307
95
t Critical two-tail1.9622564
54
Null Hypothesis: the mean of returns of Return G Sec and TCS are equalWe Notice that the two sample mean values (variance) are -0.00079664(0.0002496) and 0.000071 (0.000046). The two tailed calculated t-statistic is -1.6053 and the highlighted p-value for this test is p= 0.1087. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G Sec and TCS are equal which means whether we invest in G Sec or TCS for a day the returns are same or similar.
9
-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%
-15.0000%
-10.0000%
-5.0000%
0.0000%
5.0000%
10.0000%
15.0000%
f(x) = − 0.0829642865522561 xR² = 0.00125466742804379
Return TCS- G sec
1. Slope which is also beta is -0.083 that shows that returns TCS is minutely related to Nifty 50 returns.
2. Both are negatively correlated, for a portfolio if correlation is negatives between the two choices its good and effective diversification.
10
Tech Mahindra
t-Test: Paired Two Sample for Means
Return Tech
MahindraReturn G
sec
Mean 0.0002063517.06471E-
05
Variance 0.0022551914.56109E-
05Observations 1037 1037Pearson Correlation 0.017628697Hypothesized Mean Difference 0Df 1036t Stat 0.091329478P(T<=t) one-tail 0.463624226t Critical one-tail 1.646325771P(T<=t) two-tail 0.927248451t Critical two-tail 1.962256454
Null Hypothesis: the mean of returns of Return G Sec and Tech Mahindra are equalWe Notice that the two sample mean values (variance) are 0.0002065 (0.002255) and 0.000071 (0.000046). The two tailed calculated t-statistic is 0.09134 and the highlighted p-value for this test is p= 0.9272. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G Sec and Tech Mahindra are equal which means whether we invest in G Sec or TCS for a day the returns are same or similar.
11
-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%-20.0000%
0.0000%
20.0000%
40.0000%
60.0000%
80.0000%
100.0000%
120.0000%
140.0000%
160.0000%
f(x) = 0.124265133296896 xR² = 0.000312337066374293
Return tech mahindra- G sec
1. Slope which is also beta is +.1243 that shows that returns Tech Mahindra is minutely related to G sec returns.
2. Both are positively correlated that shows returns move in same direction.
t-Test: Paired Two Sample for Means
Return Tech
MahindraReturn Nifty 50
Mean 0.000206351
-0.0003974
36
Variance 0.0022551910.0001094
66Observations 1037 1037Pearson Correlation 0.128829025Hypothesized Mean Difference 0Df 1036t Stat 0.411126399P(T<=t) one-tail 0.34053244t Critical one-tail 1.646325771P(T<=t) two-tail 0.681064881t Critical two-tail 1.962256454
Null Hypothesis: the mean of returns of Return Nifty 50 and Tech Mahindra are equalWe Notice that the two sample mean values (variance) are 0.0002065 (0.002255) and - 0.0003975 (0.0001095). The two tailed calculated t-statistic is 0.4111264 and
12
the highlighted p-value for this test is p= 0.681064. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty 50 and Tech Mahindra are equal which means whether we invest in Nifty 50 or Tech Mahindra for a day the returns are same or similar.
-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%-20.0000%
0.0000%20.0000%40.0000%60.0000%80.0000%
100.0000%120.0000%140.0000%160.0000%
f(x) = 0.583152652550165 xR² = 0.0165301863108791
Return tech mahindra- Nifty 50
1. Slope which is also beta is +.5466 that shows that returns Tech Mahindra is highly correlated to Nifty 50 returns.
2. Both are positively correlated that shows returns move in same direction.
t-Test: Paired Two Sample for Means
Return Tech
MahindraReturn Nifty IT
Mean 0.000206351
-0.0006594
24
Variance 0.0022551910.0001754
18Observations 1037 1037Pearson Correlation 0.175575067Hypothesized Mean Difference 0Df 1036t Stat 0.593093049P(T<=t) one-tail 0.276624164t Critical one-tail 1.646325771P(T<=t) two-tail 0.553248328t Critical two-tail 1.962256454
13
Null Hypothesis: the mean of returns of Return G Sec and Tech Mahindra are equalWe Notice that the two sample mean values (variance) are 0.000206351 (0.002255) and -0.000659424 (0.000175418). The two tailed calculated t-statistic is 0.593093049 and the highlighted p-value for this test is p= 0.553248328. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty IT and Tech Mahindra are equal which means whether we invest in Nifty IT or Tech Mahindra for a day the returns are same or similar.
14
Wipro
t-Test: Paired Two Sample for Means
Return Wipro
Return Nifty IT
Mean
-0.0004405
8
-0.0006594
24
Variance0.0002787
320.0001754
18Observations 1037 1037
Pearson Correlation0.5978521
18Hypothesized Mean Difference 0df 1036
t Stat0.5115954
72
P(T<=t) one-tail0.3045215
89
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.6090431
77
t Critical two-tail1.9622564
54
We Notice that the two sample mean values (variance) are -0.00044058 (0.000278732) and -0.000659424 (0.000175418). The two tailed calculated t-statistic is 0.511595472 and the highlighted p-value for this test is p= 0.609043177. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty IT and Wipro are equal which means whether we invest in Nifty IT or Wipro for a day the returns are same or similar.
t-Test: Paired Two Sample for Means
Return Wipro
Return Nifty 50
Mean-
0.00044058
-0.0003974
36Variance 0.00027873 0.0001094
15
2 66Observations 1037 1037
Pearson Correlation0.31588518
2Hypothesized Mean Difference 0df 1036
t Stat
-0.08335074
2
P(T<=t) one-tail0.46679437
8
t Critical one-tail1.64632577
1
P(T<=t) two-tail0.93358875
6
t Critical two-tail1.96225645
4
We Notice that the two sample mean values (variance) are -0.00044058 (0.000278732) and -0.000397436 (0.000109466). The two tailed calculated t-statistic is -0.083350742 and the highlighted p-value for this test is p= 0.933588756. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty 50 and Wipro are equal which means whether we invest in Nifty 50 or Wipro for a day the returns are same or similar.
-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%
-10.0000%
-5.0000%
0.0000%
5.0000%
10.0000%
15.0000%
f(x) = 0.504933736492222 xR² = 0.100203699681815
Return Wipro- Nifty 50
1. Slope which is also beta is 0.5049 that shows that returns Wipro is highly correlated to Nifty 50 returns.
16
t-Test: Paired Two Sample for Means
Return Wipro
Return G sec
Mean-
0.000440587.06471E-
05
Variance0.00027873
24.56109E-
05Observations 1037 1037
Pearson Correlation0.00884919
8Hypothesized Mean Difference 0df 1036
t Stat
-0.91694077
7
P(T<=t) one-tail0.17969353
7
t Critical one-tail1.64632577
1
P(T<=t) two-tail0.35938707
3
t Critical two-tail1.96225645
4
We Notice that the two sample mean values (variance) are -0.00044058 (0.000278732) and -7.06471E-05 (4.56109E-05). The two tailed calculated t-statistic is -0.916940777 and the highlighted p-value for this test is p= 0.359387073. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G-Sec and Wipro are equal which means whether we invest in G-Sec or Wipro for a day the returns are same or similar.
17
-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%
-10.0000%
-5.0000%
0.0000%
5.0000%
10.0000%
15.0000%
f(x) = 0.021190357182214 xR² = 7.34350243543094E-05
Return Wipro- G Sec
1. Slope which is also beta is +.0212 that shows that returns TCS is minutely correlated to G sec returns.
2. Both are positively correlated that shows returns move in same direction.
18
Infosys
t-Test: Paired Two Sample for Means
Return
InfyReturn G
sec
Mean0.0007817
847.06471E
-05
Variance0.0013056
464.56109E
-05Observations 1037 1037
Pearson Correlation0.0276558
75Hypothesized Mean Difference 0df 1036
t Stat0.6261141
16
P(T<=t) one-tail0.2656890
06
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.5313780
12
t Critical two-tail1.9622564
54
We Notice that the two sample mean values (variance) are 0.000781784 (0.001305646) and 7.06471E-05 (4.56109E-05). The two tailed calculated t-statistic is 0.626114116 and the highlighted p-value for this test is p= 0.531378012. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G-Sec and Infosys are equal which means whether we invest in G-Sec or Infosys for a day the returns are same or similar.
19
-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%
-20.0000%
-10.0000%
0.0000%
10.0000%
20.0000%
30.0000%
40.0000%
50.0000%
60.0000%
70.0000%
80.0000%
f(x) = 0.149162982710248 xR² = 0.000776980092296077
Return Infy- G sec
1. Slope which is also beta is +.1492 that shows that returns Infy is minutely correlated to G sec returns.
2. Both are positively correlated that shows returns move in same direction.
t-Test: Paired Two Sample for Means
Return
InfyReturn Nifty 50
Mean0.000781
784
-0.000397
436
Variance0.001305
6460.000109
466Observations 1037 1037
Pearson Correlation0.183918
934Hypothesized Mean Difference 0df 1036
t Stat1.063042
159
P(T<=t) one-tail0.144005
278
t Critical one-tail1.646325
771
P(T<=t) two-tail0.288010
555
t Critical two-tail1.962256
454
20
We Notice that the two sample mean values (variance) are 0.000781784 (0.001305646) and 0.000397436 (0.000109466). The two tailed calculated t-statistic is 1.063042159 and the highlighted p-value for this test is p= 0.288010555. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty 50 and Infosys are equal which means whether we invest in Nifty 50 or Infosys for a day the returns are same or similar.
-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%
-20.0000%
-10.0000%
0.0000%
10.0000%
20.0000%
30.0000%
40.0000%
50.0000%
60.0000%
70.0000%
80.0000%
f(x) = 0.631431628479793 xR² = 0.033460215070507
Return Infy- Nifty 50
1. Slope which is also beta is 0.6314 that shows that returns Infy is highly correlated to Nifty 50 returns.
t-Test: Paired Two Sample for Means
Return InfyReturn Nifty IT
Mean0.0007817
84
-0.0006594
24
Variance0.0013056
460.0001754
18Observations 1037 1037
Pearson Correlation0.4761838
97Hypothesized Mean Difference 0df 1036
t Stat1.4494179
13
21
P(T<=t) one-tail0.0737617
69
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.1475235
38
t Critical two-tail1.9622564
54
We Notice that the two sample mean values (variance) are 0.000781784 (0.001305646) and 0.000659424 (0.000175418). The two tailed calculated t-statistic is 1.449417913 and the highlighted p-value for this test is p= 0.147523538. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty IT and Infosys are equal which means whether we invest in Nifty IT or Infosys for a day the returns are same or similar.
22
HCL
t-Test: Paired Two Sample for Means
Return
HCLReturn Nifty IT
Mean
-0.0007148
16
-0.000659
42
Variance0.0008487
650.000175
42Observations 1037 1037
Pearson Correlation0.3834589
74Hypothesized Mean Difference 0df 1036
t Stat
-0.0660988
23
P(T<=t) one-tail0.4736559
51
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.9473119
01
t Critical two-tail1.9622564
54
We Notice that the two sample mean values (variance) are 0.000714816 (0.000848765) and 0.00065942(0.00017542). The two tailed calculated t-statistic is 0.066098823 and the highlighted p-value for this test is p= 0.947311901. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both HCL and Nifty IT are equal which means whether we invest in HCL or Nifty IT for a day the returns are same or similar.
t-Test: Paired Two Sample for Means
Return
HCLReturn Nifty 50
Mean
-0.0007148
16
-0.000397
44Variance 0.0008487 0.000109
23
65 47Observations 1037 1037
Pearson Correlation0.2286749
48Hypothesized Mean Difference 0df 1036
t Stat
-0.3571680
09
P(T<=t) one-tail0.3605193
87
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.7210387
74
t Critical two-tail1.9622564
54
We Notice that the two sample mean values (variance) are 0.000714816 (0.000848765) and -0.00039744 (0.00010947). The two tailed calculated t-statistic is 0.357168009 and the highlighted p-value for this test is p= 0.721038774. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both HCL and Nifty 50 are equal which means whether we invest in HCL or Nifty 50 for a day the returns are same or similar.
-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%
-20.0000%
-10.0000%
0.0000%
10.0000%
20.0000%
30.0000%
40.0000%
50.0000%
60.0000%
70.0000%
80.0000%
f(x) = 0.638431944948334 xR² = 0.0526120367232026
Return HCL Nifty 50
1. Slope which is also beta is +.6384 that shows that returns HCL is minutely correlated to Nifty 50 returns.
2. Both are positively correlated that shows returns move in same direction.
24
t-Test: Paired Two Sample for Means
Return
HCLReturn G sec
Mean
-0.0007148
167.0647E
-05
Variance0.0008487
654.5611E
-05Observations 1037 1037
Pearson Correlation0.0263278
91Hypothesized Mean Difference 0df 1036
t Stat
-0.8507169
77
P(T<=t) one-tail0.1975615
82
t Critical one-tail1.6463257
71
P(T<=t) two-tail0.3951231
64
t Critical two-tail1.9622564
54
We Notice that the two sample mean values (variance) are 0.000714816 (0.000848765) and -7.0647E-05 (4.5611E-05). The two tailed calculated t-statistic is 0.850716977 and the highlighted p-value for this test is p= 0.395123164. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both HCL and G-Sec are equal which means whether we invest in HCL or G-Sec for a day the returns are same or similar.
25
-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%
-20.0000%
-10.0000%
0.0000%
10.0000%
20.0000%
30.0000%
40.0000%
50.0000%
60.0000%
70.0000%
80.0000%
f(x) = 0.112452467324305 xR² = 0.000679212362878787
Return HCL G sec
1. Slope which is also beta is +.1125 that shows that returns HCL is minutely correlated to G sec returns.
2. Both are positively correlated that shows returns move in same direction.
References
1. http://www.nseindia.com/ 2. http://in.investing.com/rates-bonds/india-10-year-bond-yield-historical-data 3. http://www.bloomberg.com/quote/GIND10YR:IND 4. https://www.statisticssolutions.com/manova-analysis-paired-sample-t-test/
26