We started the project by selecting some stocks based on our general understanding
of the stock market. We started by selecting 18 stocks for which we found out the
daily returns. We used prowess to find the daily returns for one year starting from
21st July, 2008 to 20th July, 2009. The 18 stocks so selected are:
Aurobindo Pharma Ltd.
Bharti Airtel Ltd.
D L F Ltd.
G M R Infrastructure Ltd.
Hero Honda Motors Ltd.
Hindustan Unilever Ltd.
I C I C I Bank Ltd.
Infosys Technologies Ltd.
N T P C Ltd.
Tata Steel Ltd.
Bharat Heavy Electricals Ltd.
Housing Development Finance Corpn. Ltd.
I T C Ltd.
I V R C L Infrastructures & Projects Ltd.
Idea Cellular Ltd.
Maruti Suzuki India Ltd.
State Bank Of India
After doing this, we found the daily returns for Nifty again from Prowess.
These returns were then used to calculate beta by regression of market returns over
stock returns i.e.
For let us say Hero Honda the regression will give the following results:
Multiple R 0.48524
R Square 0.23546
Standard Error 2.08626
df SS MS F F
Regression 1 320.3608 320.36075 73.604446 1.22262E-15
Residual 239 1040.239 4.3524647
Total 240 1360.6
Standard Upper Lower
Coefficients Error t Stat P-value Lower 95% 95% 95% Upper 95%
Intercept 0.37364 0.13444 2.7791994 0.0058826 0.10879716 0.6384756 0.108797 0.63847559
X Variable 1 0.39212 0.045706 8.5793033 1.223E-15 0.302085242 0.4821599 0.302085 0.48215994
The value of beta for Hero Honda can be easily from the table above as 0.39212.
Similarly all the Beta values can be seen for the tables. All these beta values can be
tabulated. Now using the market returns for each security, the security risk can be
calculated as the variance of the returns. In the similar manner the market returns
can be used to calculate the market risk. Now the systematic risk can be calculated
using the formula
The unsystematic risk can be calculated as total security risk – systematic risk.
σi2 - βi2 σm2
And finally the value of R2 can be calculated as
Systematic risk / Total Risk
This value of R2 can also be verified from the regression table. This was the table
Hero Hindusta Maruti
Aurobind Honda n Infosys Suzuki
o Pharma Motors Unilever Technologie NTPC India
Ltd. Ltd. Ltd. s Ltd. Ltd. I T C Ltd. Ltd.