the variables to find the best model. -32 The closing stock price for each of tw

Question

the variables to find the best model. -32 The closing stock price for each of two stocks was recorded over a 12-month period. The clos- ing price for the Dow Jones Industrial Average (DJIA) was also recorded over this same time pe- riod. These values are shown in the following table: MONTH DJIA STOCK 1 STOCK 2 11,168 11,150 11,186 11,381 11,679 12,081 12,222 12,463 12,622 12,269 12,354 13,063 13,326 48.5 48.2 44.5 44.7 49.3 49.3 46.1 46.2 47.7 48.3 47.0 47.9 47.8 32.4 31.7 31.9 36.6 36.7 38.7 39.5 41.2 43.3 39.4 40.1 42.1 45.2 4 10 12 13

Explanation / Answer

a) Stock1 = b0 + b1* DJIA

y1^ = 42.4325 + 0.000407*DJIA

R^2 = 0.035204

b)

y2^ = -31.54007 + 0.005789*DJIA

R^2 = 0.9239560

c) since R^2 in case of stock 2 is much more than that of stock 1

stock 2 is most highly correlated with DJIA

SUMMARY OUTPUT Regression Statistics Multiple R 0.187627675 R Square 0.035204145 Adjusted R Square -0.05250457 Standard Error 1.603963525 Observations 13 ANOVA df SS MS F Significance F Regression 1 1.032618801 1.032618801 0.401375678 0.539329066 Residual 11 28.29968889 2.57269899 Total 12 29.33230769 Coefficients Standard Error t Stat P-value Lower 95% Intercept 42.43247825 7.768625337 5.46203175 0.000197216 25.33384917 DJIA 0.000406958 0.000642354 0.633542167 0.539329066 -0.001006853

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