APPENDIX – 1

Title : Calculate central tendency, dispersion and

determine correlation for revenue, profit-
after-tax and share price data of Reliance
Industry Limited listed on the Bombay
Stock Exchange.

Subject : Information Analysis on Strategic Decision

Making

Level / Semester : Trimester II (Part Time)

Programme : MBA (Part Time)

Subject Tutor : K.V.P. Raghavan

Name of Student : Rajaseelan Manavalan

Student’s Registration Number : WBPT/ F09 /07

Date of Submission : 12th April 2009

Word Count : 1400 words (excluding tables)

Word Limit : 2000 words.

 APPENDIX – 2

Student Name Rajaseelan

Manavalan
Registration Number
WBPT/F09/07
Date for submission of the Assignment. 12th April 2009
The cover page is in the correct format as indicated in the Guidelines
Yes / No
of writing Assignments
Have done a complete spell – check of the assignment Yes / No
Have done a complete word count for the assignment Yes / No
Does the table of contents include numbers? Yes / No
Are the pages numbered correctly? Yes / No
Are the figures numbered correctly? Yes / No
Are the tables / charts numbered correctly? Yes / No
Are the captions for the tables and charts proper? Yes / No
Are the references / bibliography listed in the assignment? Yes / No
Are the references cited adequately in the text? Yes / No
Are the references in the text in the proper format as indicated in the
Yes / No
“Guidelines to writing Assignments”
A soft copy of the assignment has been enclosed with the assignment Yes / No
All material written in this assignment is my own and I have not used
any material, content or information of others claiming them to be
mine. Wherever materials have been used, proper citation has been
done in the text. I am fully aware of the rules and regulations
Yes / No
governing the Plagiarism applicable to the dissertation and should at
any point of time my work is suspected / investigated and established
to have plagiarized some other work. Am aware of the consequences if
such cases are detected and have read the Student Handbook in detail.

Signature of the student Date: April 12, 2009

(________________)

2
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.

Determination of relationship, if any, between changes in revenues,

profit-after-tax and the changes in prices for Reliance Industries Ltd in
the BSE.

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

4
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

Comment on your findings comparing the results of year 2007-08

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

Reliance Industry Quarterly Revenues, PAT & Share Price Table

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

Share Prices8 between Jan 2007 and Dec 2008

Months 2008 (Rs.) 2007 (Rs.)
January 2,479.50 1,364.60
February 2,458.25 1,354.60
March 2,264.50 1,368.35
April 2,614.85 1,560.10
May 2,401.65 1,760.20
June 2,093.25 1,700.30
July 2,206.20 1,892.30
August 2,136.75 1,959.50
September 1,946.35 2,296.20
October 1,370.75 2,782.55
November 1,131.60 2,850.75
December 1,230.25 2,881.05

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)

3.1 Computation of Arithmetic Mean

Total number of variables (N) = 12

Mean = (Σx/N)

Calculation of mean for 2008 (x’2008) = (Σx2008/N)

Σx2008 = 24,333.90
x’2008 = 24,333.90 / 12 = Rs. 2027.83

Calculation of mean for 2007 (x’2007) = (Σx2007/N)

Σx2007 = 23,770.50
x’2008 = 23,770.50 / 12 = Rs. 1980.88

Assumed Mean based computation

Mean = A + (Σd/N)
Σd2008 = -785.10
Σd2007 = 256.50
A2008 = 2093.25
A2007 = 1959.50

8
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.

3.2 Computation of Median

Table 4: Ascending order presentation of share prices of Reliance Industry

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.

Median (Q2) = Value of X for ((N+1)/2)th position

Position of Q2 = (N+1)/2 = 6.5
Position of Q1 = (N+1)/4 = 3.25
Position of Q3 = (N+1)*3/4 = 9.75

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

9
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

Q1 = (1370.75 * 0.25) + (1946.35 * 0.75) = 342.69 + 1459.77

Q3 = (2401.65 * 0.75) + (2458.25 * 0.25) = 1801.24 + 614.57

Q22008 = Rs. 2171.48

Q12008 = Rs. 1802.45
Q32008 = Rs. 2415.80

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

Q1 = (1368.35 * 0.25) + (1560.1 * 0.75) = 1512.16

Q3 = (2296.2 * 0.75) + (2782.55 * 0.25) = 2417.79

Q22007 = Rs. 1826.25

Q12007 = Rs. 1512.16
Q32007 = Rs. 2417.79

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.

3.3 Computation of Mode

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.

10
3.4 Computation of Standard Deviation

Table 5: Calculating standard deviation using Mean

Share Prices between Jan 2007 and Dec 2008
Months 2008 (Rs.) 2007(Rs.) (x-x')2008 (x-x')2007 (x-x')2008^2 (x-x')2007^2
January 2,479.50 1,364.60 451.68 -616.28 204,010.31 379,794.88
February 2,458.25 1,354.60 430.43 -626.28 185,265.68 392,220.38
March 2,264.50 1,368.35 236.68 -612.53 56,015.06 375,186.88
April 2,614.85 1,560.10 587.03 -420.78 344,598.35 177,051.60
May 2,401.65 1,760.20 373.83 -220.68 139,745.13 48,697.46
June 2,093.25 1,700.30 65.43 -280.58 4,280.43 78,722.33
July 2,206.20 1,892.30 178.38 -88.57 31,817.64 7,845.53
August 2,136.75 1,959.50 108.93 -21.37 11,864.66 456.89
September 1,946.35 2,296.20 -81.47 315.33 6,638.18 99,429.86
October 1,370.75 2,782.55 -657.08 801.68 431,747.56 642,682.81
November 1,131.60 2,850.75 -896.23 869.88 803,219.25 756,682.52
December 1,230.25 2,881.05 -797.58 900.18 636,125.88 810,315.03
Σx = 24,333.90 23,770.50 0.00 0.00 2,855,328.11 3,769,086.14

Number of variables, N =12.

Standard Deviation, σ= sqrt[( Σ(x-x’)^2) / N]

(Where sqrt stands for square root, x’ is the mean & x is the discrete variable)

σ2008 = sqrt[ (2855328.11) / 12] = sqrt[237944.01] = Rs. 487.795

σ2007 = sqrt[ (3769086.14) / 12] = sqrt[314090.51] = Rs. 560.438

11
 Calculation using Step Deviation
Assumed Mean, A2008 = 2093.25
Assumed Mean, A2007 = 1959.50
Step, i = 100
d=x–A
d’ = (x – A)/i

Table 6: Calculating standard deviation using assumed mean

Share Prices between Jan 2007 and Dec 2008
d’2008 = (x2008 - d’2007 = (x2007 -
Months 2008 (Rs.) 2007(Rs.) A2008)/i A2007)/i (d’2008)^2 (d’2007)^2
January 2,479.50 1,364.60 3.86 -5.95 14.92 35.39
February 2,458.25 1,354.60 3.65 -6.05 13.32 36.59
March 2,264.50 1,368.35 1.71 -5.91 2.93 34.95
April 2,614.85 1,560.10 5.22 -3.99 27.21 15.95
May 2,401.65 1,760.20 3.08 -1.99 9.51 3.97
June 2,093.25 1,700.30 0.00 -2.59 0.00 6.72
July 2,206.20 1,892.30 1.13 -0.67 1.28 0.45
August 2,136.75 1,959.50 0.44 0.00 0.19 0.00
September 1,946.35 2,296.20 -1.47 3.37 2.16 11.34
October 1,370.75 2,782.55 -7.23 8.23 52.20 67.74
November 1,131.60 2,850.75 -9.62 8.91 92.48 79.43
December 1,230.25 2,881.05 -8.63 9.22 74.48 84.93
Σx = 24,333.90 23,770.50 -7.85 2.57 290.67 377.46

Assume
Standard Deviation using step deviation method, σ= sqrt[( Σd’^2) / N – (Σd’/N)^2] * i

σ2008 = sqrt[ (290.67) / 12 – (-7.85/12)^2] * 100 = sqrt[23.795] *100 = Rs. 487.795

σ2007 = sqrt[ (377.46) / 12 – (2.57/12)^2] * 100 = sqrt[31.4091] * 100 = Rs. 560.438

3.5 Relative Measures of Dispersion

3.5.1 Coefficient of Range

CR9 = (H10-L11)/(H+L)

CR2008 = (2614.85 – 1131.6) / (2614.85 + 1131.6) = 0.39591

CR2007 = (2881.05 – 1354.6) / (2881.05 + 1354.6) = 0.36038

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

CQD2008 = (2415.8 – 1802.45) / (2415.8 + 1802.45) = 0.1454

CQD2007 = (2417.79 – 1512.16) / (2417.75 + 1512.16) = 0.23033

3.5.3 Coefficient of Mean Deviation

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

CMD2008 = [ (4864.7) / 12 ] / (2027.83) = 0.19991

CMD2007 = [ (5774.1 / 12 ] / (1980.88) = 0.24291

3.5.4 Coefficient of Variations

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

CV2008 = (487.795/2027.83)*100 = 24.055%

CV2007 = (560.438/1980.88) *100 = 28.292%

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.

4 Determination of coefficient of correlation

The independent variables in the given data in Table 1 are the change in revenues and
change in PAT for reliance industries. The change in share price of Reliance is assumed
to be the dependent variable.

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} ]

4.1 Computation using percentage as units

4.1.1 Computation of Mean and Standard Deviation
Table 8: Correlation determination with all variables in percentages

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

Number of variables, n = 20.

Computation of Mean
Mean of change in revenues, x2’ = 114.24/20 = 5.71 %.
Mean of change in PAT, x3’ = 111.12/20 = 5.56%
20
R1.23 is the notation for linear multiple correlation coefficient between independent variables x2, x3 and
their dependent variable x1. r12 is the linear simple correlation coefficient between variables x1 & x2.
Similarly, r23 is the correlation coefficient between variables x2 & x3 and r13 is the correlation coefficient
between variables x1 & x3.
21
sqrt is acronym for square root.

15
Mean of change in share price, x1’ = 170.71/20 = 8.54%

Computation of Standard Deviation

SD of change in revenues, σ2 = sqrt (3151.2/20) = 12.5523 %.
SD of change in PAT, σ3 = sqrt (17746.01/20) = 29.7876 %.
SD of change in share price, σ1 = sqrt (7068.57/20) = 18.7997%

4.1.2 Computation of Covariance

Table 9: Average Joint Deviation Calculations (variables: changes in %)

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

Computation of simple correlation coefficient

Simple correlation coefficient between x1 & x2, r12 = 57.2365/ (12.5523*18.7997)
= 0.242549
Simple correlation coefficient between x1 & x3, r13 = 224.7445/ (18.7997*29.7876)
= 0.401331
Simple correlation coefficient between x2 & x3, r32 = 143.8045/(12.5523*29.7876)
= 0.384604

Coefficient of Determination, (r12)^2 = 0.059

Coefficient of Determination, (r13)^2 = 0.161
Coefficient of Determination, (r32)^2 = 0.148

Computation of multiple correlation coefficients

R1.23 = sqrt [{(0.242549) ^2 + (0.401331) ^2 – 2*(0.242549*0.401331*0.384604)}

/ {1 – (0.384604) ^2}]

= sqrt [{0.058830 + 0. 161067- 0.074877} / 0.852080]

= sqrt [0.170195]
= 0.412547

Coefficient of Multiple Determination, (R1.23)^2 = 0.1702

4.2 Correlation Validity Analysis

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

18