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Stats2 - qn2

The analyst computed the coefficient of rank correlation between two analysts' rankings of firms. The coefficient value was 0.67, indicating a strong positive relationship where higher ranks by one analyst tended to correspond to higher ranks by the other. To compare turnover rates between communication stocks and other stocks, the analyst performed a t-test. The null hypothesis was that the mean turnover rates were equal, and the alternative was that they were unequal. The t-test statistic was greater than the critical value, so the null hypothesis was rejected, indicating a significant difference between the turnover rates of the two stock types.

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53 views2 pages

Stats2 - qn2

The analyst computed the coefficient of rank correlation between two analysts' rankings of firms. The coefficient value was 0.67, indicating a strong positive relationship where higher ranks by one analyst tended to correspond to higher ranks by the other. To compare turnover rates between communication stocks and other stocks, the analyst performed a t-test. The null hypothesis was that the mean turnover rates were equal, and the alternative was that they were unequal. The t-test statistic was greater than the critical value, so the null hypothesis was rejected, indicating a significant difference between the turnover rates of the two stock types.

Uploaded by

cyrus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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a. Explain the difference between correlation and regression analysis.

         

Answer:

Correlation is a statistical measure that determines the association or co-relationship between two
variables. Regression describes how to numerically relate an independent variable to the
dependent variable. Regression indicates the impact of a change of unit on the estimated variable
( y) in the known variable (x).                 

(4 Marks)

b. Two financial analysts are asked to rank a group of firms in order of expected
performance for next year. The ranking is as shown below.

Firm A B C D E F
Rankin 6 2 1 4 3 5
g by
Analyst
1(R1)
Rankin 5 4 2 6 1 3
g by
Analyst
2(R2)
Compute the coefficient of rank correlation between the two analysts and comment
on the value.                                                                            (6 Marks)
Answer

We then substitute this into the main equation with the other information as follows:
as n = 10. Hence, we have a ρ (or rs) of 0.67. This indicates a strong positive relationship
between the ranks individuals obtained in the R1 and R2 That is, the higher you ranked in R1,
the higher you ranked in R2 also, and vice versa.

 (c)A financial analyst is interested in comparing the turnover rates, in percent, for
shares of communication –related stocks versus other stocks, such as Safaricom
and Equity Bank. She selected 32 communication- related stocks and 49 other
stocks. The mean turnover rate of communication-related is 31.4 percent and
standard deviation 5.1 percent. For other stocks the mean rate was computed to be
34.9 percent and standard deviation 6.7 percent. Is there a significant difference in
the turnover rates of the two types of stock? Take =0.01.                 
(10 Marks)
Answer:

first we state the hypothesis


Ho: the two means are equal
Ha: the two means are not equal
then we obtain v1=(var1/n1)=5.1^2/32 =0.81
then v2=(var2/n2)=6.7^2/49=0.92
then (mu1-mu2)/sqrt(v1+v2)
t=15.3
this is less than the tabulated t value hence you reject the null hypothesis

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