Quantifying the Behavior of

QUANTIFYING THE BEHAVIOR OF STOCK CORRELATION 3

Quantifyingthe Behavior of Stock Correlation

Quantifyingthe behavior of stock correlation under market stress

Correlationis a statistical measure used to indicate the extent to which two ormore variables differ together (Weiss, 2016). As a result, a positivecorrelation shows that the degreeto which the variables fluctuate is corresponding while a negativecorrelation depicts that variables fluctuate counter currently. Inour case, the task is to examine if at all there exists a correlationbetween the consumer confidence and the Dow Jones Industrial Average(DJIA) and above all the kind of relationship,if any, being exhibited.

Looking at the last quarter’s DJIA stock prices, we have

DJIA stock price(close)

Deviation

31/10/2016

18142.42

01/11/2016

18037.10

105.32

02/11/2016

17959.64

77.46

03/11/2016

17930.67

28.97

04/11/2016

17888.28

42.39

Fromthose deviations above, we can see the DJIA stock prices have beendecreasing over the last quarter.

Onthe other hand, when we look at the consumer confidence, it comes toour attention that the consumers ‘appraisal of current conditionshas softened (Nielsen, 2016). The number of customerswho perceived that the business conditions were gooddeclined same with those who expected the businessconditions could improve. It,therefore,comes to our knowledge that the number of consumersperceivesthe firmconditions and job opportunities from the pessimistic point of viewhaveaugmented.

Incomparison, we can see that both the DJIA stock prices and theconsumer confidence have decreased simultaneously. We can,therefore,affirm there is a correlation between the consumer confidenceand the DJIA stock prices,and since both fluctuate in the same direction, it is apositivekind of correlation.Thus isCorr(DJIA, Consumer confidence) ˃ 0.

References

Weiss,N. A. (2016). Introductory Statistics (10th Ed.). New York, NY:Pearson Education.