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Behavioral Finance

VIEWS: 35 PAGES: 21

Analysis of HUL results and using various strategies to make super profit.

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  • pg 1
									FIRST ASSIGNMENT
OF

BEHAVIORAL FINANCE

UNDER GUIDANCE OF PROF. S.N.RAO

PREPARED BY KUMAR DHANANJAY RAKESH ROLL NO: 917

Contents to be covered

 Past three years stock Price Pattern of HUL.  Computation of lag-1 and lag-2 correlation coefficient and R-Square.  Significance of the correlation coefficient and its relevance in reliable prediction of

future prices.

 Moving Average Strategy to make profit in the times of uncertainty HUL example.  Comparative Analysis – MA vs BH & MA vs TP strategy in the context of HUL.  Comparative Analysis of all the strategies in the context of HUL. Which strategy

yields more return.

 Maximum yield with minimum Transaction Cost.

Past three years stock Price Pattern of HUL

HUL Price Pattern (Jan’06-Jul’06)

HUL Price Pattern (Jul’06-Feb’07)

HUL Price Pattern (Mar’07-Sep’07)

HUL Price Pattern (Oct’07-May’08)

HUL Price Pattern (May’08-Dec’08)

Computation of lag-1 and lag-2 correlation coefficient and R-Square

For HUL

R^2 Lag-1 Correlation -0.02596 0.000674

Lag-2 Correlation

-0.0338

0.001142

For Index R^2 Lag-1 Correlation -0.02568 0.00066

Lag-2 Correlation

0.085838

0.007368

Computation of lag-1 and lag-2 correlation coefficient and R-Square

 Coefficient of correlation:

It varies between +1 and -1. If it is positively correlated that means the stock price is moving in the same direction and vice-versa.

Lag-1 Correlation: It explains the relationship of today's price with yesterday’s price,
since lag-1 = -0.025959 which means today’s price is moving in the opposite direction of the yesterday’s price but the magnitude is very low.

Lag-2 Correlation: It describes the today’s price with day before yesterday’s price,
Since lag-2 = -0.033795 which means today’s price is negatively correlated with day before yesterday’s price with a very low magnitude.

Significance of the correlation coefficient and its relevance in reliable prediction of future prices



In this case the coefficient of correlation is (–ve) and is not significant so, we cannot use the above relationship for reliable future prediction, since its magnitude is very low , most of the times our future prediction may not be true. Therefore, we cannot use it for future price prediction.

 R-Square (Coefficient of Determination):

R-Square indicates the strength of relationship, if it is >50%, we can say that today's price is dependent on yesterdays price therefore, we will be in position to forecast. If it is <50%, then majority of the times forecasting may not be correct and hence we can say our market is efficient market. In this case R-Square is significantly less than 50%, we can say that today’s price does not depend on yesterday’s price because there is very weak relationship between the two prices.

Moving Average Strategy to make profit in the times of uncertainty HUL example……

Date 25-Jan-06 10-May-06 22-Jun-06 20-Jul-06 15-Sep-06 9-Oct-06 3-Nov-06 24-Nov-06

Closing Price 196.2 279.85 218.65 231.3 243.8 243.35 236.15 243.8

Call BUY SELL BUY SELL BUY SELL BUY SELL SUM BUY SELL BUY SELL BUY SELL BUY SELL BUY SUM SELL BUY SELL BUY SELL BUY SELL BUY SELL BUY SUM SELL SUM

20-Mar-07 3-May-07 24-May-07 7-Jun-07 2-Jul-07 10-Aug-07 28-Aug-07 16-Oct-07 21-Nov-07

184.1 195.8 201.2 191.1 188.65 196.8 202.1 212.95 201.95

16-Jan-08 18-Feb-08 17-Apr-08 25-Apr-08 15-May-08 14-Jul-08 16-Sep-08 24-Sep-08 8-Oct-08 6-Nov-08

214.7 211.15 231.9 250.3 237.75 220.1 240.9 249.7 238.15 244.95

2-Jan-09

247.5

HUL - Using MA Strategy Gain/Loss Transaction Cost -1.962 83.65 -2.7985 -2.1865 12.65 -2.313 -2.438 -0.45 -2.4335 -2.3615 7.65 -2.438 103.5 -18.931 % Gain Using MA -1.841 11.7 -1.958 -2.012 -10.1 -1.911 -1.8865 8.15 -1.968 -2.021 10.85 -2.1295 -2.0195 20.6 -17.7465 % Gain Using MA 12.75 -2.147 -2.1115 20.75 -2.319 -2.503 -12.55 -2.3775 -2.201 20.8 -2.409 -2.497 -11.55 -2.3815 -2.4495 30.2 -23.396 % Gain Using MA 2.55 -2.475 156.85 -62.5485 % Gain by Using MA

Net Gain -1.962 80.8515 -2.1865 10.337 -2.438 -2.8835 -2.3615 5.212 84.569 43.1034659 -1.841 9.742 -2.012 -12.011 -1.8865 6.182 -2.021 8.7205 -2.0195 2.8535 1.45735444 10.603 -2.1115 18.431 -2.503 -14.9275 -2.201 18.391 -2.497 -13.9315 -2.4495 6.804 2.93402329 0.075 94.3015 48.0639653

Comparative Analysis

Moving Average vs. Buy Hold Strategy & Moving Average vs. Technical Patterns

HUL - Using MA Strategy Date Closing Price Call 196.2 BUY 25-Jan-06 SELL 10-May-06 279.85 218.65 BUY 22-Jun-06 231.3 SELL 20-Jul-06 243.8 BUY 15-Sep-06 SELL 9-Oct-06 243.35 236.15 BUY 3-Nov-06 243.8 SELL 24-Nov-06 184.1 BUY 20-Mar-07 195.8 SELL 3-May-07 201.2 BUY 24-May-07 191.1 SELL 7-Jun-07 188.65 BUY 2-Jul-07 196.8 SELL 10-Aug-07 202.1 BUY 28-Aug-07 SELL 16-Oct-07 212.95 201.95 BUY 21-Nov-07 214.7 SELL 16-Jan-08 BUY 18-Feb-08 211.15 231.9 SELL 17-Apr-08 250.3 BUY 25-Apr-08 237.75 SELL 15-May-08 220.1 BUY 14-Jul-08 240.9 SELL 16-Sep-08 249.7 BUY 24-Sep-08 238.15 SELL 8-Oct-08 BUY 6-Nov-08 244.95 247.5 SELL 2-Jan-09 SUM Gain/Loss 83.65 12.65 -0.45 Transaction Cost -1.962 -2.7985 -2.1865 -2.313 -2.438 -2.4335 -2.3615 -2.438 -1.841 -1.958 -2.012 -1.911 -1.8865 -1.968 -2.021 -2.1295 -2.0195 -2.147 -2.1115 -2.319 -2.503 -2.3775 -2.201 -2.409 -2.497 -2.3815 -2.4495 -2.475 -62.5485 % Gain by Using MA Net Gain -1.962 80.8515 -2.1865 10.337 -2.438 -2.8835 -2.3615 5.212 -1.841 9.742 -2.012 -12.011 -1.8865 6.182 -2.021 8.7205 -2.0195 10.603 -2.1115 18.431 -2.503 -14.9275 -2.201 18.391 -2.497 -13.9315 -2.4495 0.075 94.3015

HUL - Using Buy & Hold Strategy Date Closing Price 196.2 25-Jan-06 279.85 10-May-06 218.65 22-Jun-06 231.3 20-Jul-06 243.8 15-Sep-06 243.35 9-Oct-06 236.15 3-Nov-06 243.8 24-Nov-06 184.1 20-Mar-07 195.8 3-May-07 201.2 24-May-07 191.1 7-Jun-07 188.65 2-Jul-07 196.8 10-Aug-07 202.1 28-Aug-07 212.95 16-Oct-07 201.95 21-Nov-07 214.7 16-Jan-08 211.15 18-Feb-08 231.9 17-Apr-08 250.3 25-Apr-08 237.75 15-May-08 220.1 14-Jul-08 240.9 16-Sep-08 249.7 24-Sep-08 238.15 8-Oct-08 244.95 6-Nov-08 247.5 2-Jan-09 51.3 Gain Call BUY Transaction Cost -1.962

7.65
11.7 -10.1 8.15 10.85 12.75 20.75 -12.55 20.8 -11.55 2.55 156.85

SELL Total SUM % Gain by Using BH

-2.475 -4.437 46.863 23.8853211

48.06397

Comparative Analysis of Strategies Using Technical Charts
Closing Date Price 25-Jan-06 196.2 10-May-06 279.85 22-Jun-06 218.65 20-Jul-06 231.3 15-Sep-06 243.8 9-Oct-06 243.35 3-Nov-06 236.15 24-Nov-06 243.8 20-Mar-07 184.1 3-May-07 195.8 24-May-07 201.2 7-Jun-07 191.1 2-Jul-07 188.65 10-Aug-07 196.8 28-Aug-07 202.1 16-Oct-07 212.95 21-Nov-07 201.95 16-Jan-08 214.7 18-Feb-08 211.15 17-Apr-08 231.9 25-Apr-08 250.3 15-May-08 237.75 14-Jul-08 220.1 16-Sep-08 240.9 24-Sep-08 249.7 8-Oct-08 238.15 6-Nov-08 244.95 2-Jan-09 247.5 HUL - Using MA Strategy Transaction Call Gain/Loss Cost BUY -1.962 SELL 83.65 -2.7985 BUY -2.1865 SELL 12.65 -2.313 BUY -2.438 SELL -0.45 -2.4335 BUY -2.3615 SELL 7.65 -2.438 BUY -1.841 SELL 11.7 -1.958 BUY -2.012 SELL -10.1 -1.911 BUY -1.8865 SELL 8.15 -1.968 BUY -2.021 SELL 10.85 -2.1295 BUY -2.0195 SELL 12.75 -2.147 BUY -2.1115 SELL 20.75 -2.319 BUY -2.503 SELL -12.55 -2.3775 BUY -2.201 SELL 20.8 -2.409 BUY -2.497 SELL -11.55 -2.3815 BUY -2.4495 SELL 2.55 -2.475 SUM 156.85 -62.5485 % Gain by Using MA HUL - Using Technical Patterns Net Gain -1.962 80.8515 -2.1865 10.337 -2.438 -2.8835 -2.3615 5.212 -1.841 9.742 -2.012 -12.011 -1.8865 6.182 -2.021 8.7205 -2.0195 10.603 -2.1115 18.431 -2.503 -14.9275 -2.201 18.391 -2.497 -13.9315 -2.4495 0.075 94.3015

Date

Closing Price
281 227 218 262 234 208 204 180 220 185 221 255

Call

Gain/Loss Transacti Net Gain on Cost
-2.81 54 -2.27 -2.18 44 -2.62 -2.34 26 -2.08 -2.04 24 -1.8 -2.2 35 -1.85 -2.21 34 -2.55 -2.81 51.73 -2.18 41.38 -2.34 23.92 -2.04 22.2 -2.2 33.15 -2.21 31.45

May-06 May-06 Aug-06 Sep-06 Dec-06 Jan-07 Apr-07 May-07 Jan-08 Jan-08 Jul-08 Sep-08

SHORT SO BUY SELL SHORT SO SHORT SO SHORT SO BUY SELL

Dec-08
Dec-08

240
270

BUY
SELL 30

-2.4
-2.7

-2.4
27.3

Jan-09
Jan-09 Feb-09 Feb-09

242
273 246 216

BUY
SELL SHORT SO SUM 30 308 31

-2.42
-2.73 -2.46 -2.16 -41.82

-2.42
28.27 -2.46 27.84 266.18

% Gain by Using TP 94.72598 48.06397

Comparative Analysis of all the strategies in the context of HUL. Which strategy yields more return

Comparative Analysis of Different Strategies Strategy Gain/Loss (%) Buy & Hold Filter BM & SF BM & ST BW & SF MA Strategy TA Pattern 10.39986267 -78.19066148 -102.5305562 -78.33623255 -69.27786679 44.67431193 94.72597865
100 80 60 40 20 0 -20 -40 -60 -80 -100 -120

Comparative Analysis of Different Strategies Gain/Loss (%)

Comparative Analysis of Different Strategies Gain/Loss (%)

Comparative Analysis of all the strategies in the context of HUL. Which strategy yields more return

Comparative Analysis of Different Strategies Strategy Buy & Hold Filter BM & SF BM & ST BW & SF MA Strategy TA Pattern Gain/Loss

Comparative Analysis of Different Strategies Gain/Loss
400.00

27.45
300.00

-45.5
200.00

-223.98 -171.13 -151.34 87.65 308

100.00 0.00 -100.00 -200.00 -300.00

Comparative Analysis of Different Strategies Gain/Loss

Comparative Analysis of all the strategies in the context of HUL. Maximum yield with minimum Transaction Cost

Comparative Analysis of Different Strategies Strategy Buy & Hold Filter BM & SF BM & ST BW & SF MA Strategy TA Pattern Transaction Cost -4.73
-50.00 0.00

Transaction Cost

-125.3075 -232.88 -223.48 -220.64
-200.00 -100.00 Transaction Cost -150.00

-56.45 -41.82
-250.00

Thank You


								
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