Showing posts with label Slope. Show all posts
Showing posts with label Slope. Show all posts

Monday, February 6, 2023

Clorox's Poor Average Monthly Returns

Clorox makes household products such as wipes, sprays, and bleach (Exhibit 1)

Exhibit 1: 

Source: Clorox Website

Over the past decade, Clorox has underperformed compared to the S&P 500 Index. An analysis of the monthly returns of Clorox and the Vanguard S&P 500 Index ETF between June 2019 and January 2023 shows that Clorox continued its poor performance. Clorox's monthly return averaged 0.1%, while the Vanguard S&P 500 Index returned 1% (Exhibits 2 & 3). Even the third quartile average monthly return of 3.2% of Clorox fell below the 4.8% returned by the Vanguard S&P 500 Index ETF (Exhibits 2 & 3).  

Exhibit 2:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel


Exhibit 3:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel

The monthly returns of Clorox and the Vanguard S&P 500 Index ETF between June 2019 and January 2023 show a low correlation of 0.24. 

A rolling correlation of the monthly returns conducted using RStudio shows a low positive correlation of 0.02 between August 2020 and July 2021 (Exhibit 4)

Exhibit 4:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel, RStudio

 A linear regression of the monthly returns shows a very low beta of 0.25 for Clorox. But, the p-value of 0.1 shows that the relationship may not be significant at the 95% confidence interval.  

Call:

lm(formula = CLX_Monthly_Return ~ VOO_Monthly_Return, data = VOOandCLX)


Residuals:

      Min        1Q    Median        3Q       Max 

-0.141038 -0.033613  0.000236  0.036959  0.120780 


Coefficients:

                    Estimate Std. Error t value Pr(>|t|)

(Intercept)        -0.001581   0.008864  -0.178    0.859

VOO_Monthly_Return  0.252497   0.153777   1.642    0.108


Residual standard error: 0.05781 on 42 degrees of freedom

Multiple R-squared:  0.06032, Adjusted R-squared:  0.03795 

F-statistic: 2.696 on 1 and 42 DF,  p-value: 0.1081 

Here's the graph of the monthly returns of the Vanguard S&P 500 Index ETF and Clorox (Exhibit 5) and the residuals plot from the linear regression (Exhibit 6).

Exhibit 5:   

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel, RStudio

Exhibit 6:
Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel, RStudio



  
 


     

Saturday, February 4, 2023

Change in Correlation of the Monthly Returns of Generac Holdings and the Vanguard S&P 500 Index ETF

Generac Holdings (GNRC) has a beta of 1.19 based on a linear regression model of the monthly returns of the Vanguard S&P 500 Index ETF (VOO) and Generac Holdings. The company's residential sales slowdown has pushed the stock lower over the past five months. The stock has dropped 55% compared to a 7% drop for the Vanguard S&P 500 Index ETF over the past year. This massive underperformance of the stock has led to a drop in the monthly return correlation of the Vanguard ETF and Generac Holdings.  

     Exhibit 1: A Generac Generator

Source: Generac Holdings Inc.
Here's the graph of the Vanguard S&P 500 Index ETF and Generac Holdings' monthly returns (Exhibit 2).  

Exhibit 2: Monthly Returns of the Vanguard S&P 500 Index ETF and Generac Holdings

Source: Data Provided by IEX Cloud, Author Calculations on Microsoft Excel, Graph Created on RStudio

The graph of the monthly returns also shows a correlation of 0.44 between the two equities.  
Here are the betas of some of the stocks I have covered over the past few months (Exhibit 3)

Note: Click on each image to see an enlarged version. 
 
Exhibit 3: Beta of Various stocks in the consumer staples, consumer discretionary, and industrial sectors.   
Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel and RStudio

Here's the output from the linear regression model:

Call:
lm(formula = GNRC_Monthly_Return ~ VOO_Monthly_Return, data = VOOandGNRC)

Residuals:
     Min       1Q   Median       3Q      Max 
-0.46400 -0.09209  0.00221  0.10001  0.28690 

Coefficients:
                   Estimate Std. Error t value Pr(>|t|)   
(Intercept)         0.01733    0.02170   0.798  0.42915   
VOO_Monthly_Return  1.19915    0.37646   3.185  0.00273 **
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.1415 on 42 degrees of freedom
Multiple R-squared:  0.1946, Adjusted R-squared:  0.1754 
F-statistic: 10.15 on 1 and 42 DF,  p-value: 0.002726

The slope of the line is the beta for the stock. In this linear regression model, the co-efficient of VOO_MonthlyReturn (1.19915) is the beta for Generac Holdings. 

The monthly return statistics for Generac holdings show that the stock has a very high standard deviation of 15% in its monthly returns (Exhibit 4).

Exhibit 4: Generac Holdings Monthly Return Statistics [June 2019 - January 2023]    
Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel

Here are the return statistics for the Vanguard S&P 500 Index ETF during the same period (Exhibit 5).

Exhibit 5: Vanguard S&P 500 Index ETF Monthly Return Statistics  [June 2019 - January 2023]  

Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel

The Vanguard S&P 500 Index ETF and Generac Holdings' monthly returns had a high positive correlation of 0.72 between October 2021 and September 2022 (Exhibit 6).   

Exhibit 6: Monthly Return Correlation of the Vanguard S&P 500 Index ETF and Generac Holdings
Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel and RStudio





 

 



  



Tuesday, September 27, 2022

Boeing's Monthly Return Volatility Compared to the Vanguard S&P 500 Index ETF From June 2019 to August 2022

 Given its dominant position in the aerospace market, one would think Boeing's (BA) monthly returns would be less volatile than the S&P 500 index (VOO). But, Boeing has endured a lot in the past few years. First came the trade war with China that froze Boeing out of the second-largest aerospace market in the world.  Then came the COVID-19 pandemic that grounded airlines worldwide and brought Boeing to its knees. We did not even talk about the 737 Max plane crash in Ethiopia that kicked off the disastrous few years for Boeing.  

Boeing has never fully recovered from either the trade war or the pandemic. Boeing remains frozen out of the Chinese market, and airlines are only now seeing air travel return close to pre-pandemic levels (Exhibit 1).

Exhibit 1: TSA Checkpoint Travel Number September 17, 2022 - September 26, 2022

TSA Checkpoint Travel Number September 17, 2022 - September 26, 2022
TSA Checkpoint Travel Numbers (Source: TSA.GOV)


Now, the world is grappling with slowing growth due to high inflation and interest rates, which is putting further pressure on Boeing. By the looks of it, Boeing stock may take a decade or more to recover its losses if it ever recovers. Boeing's stock has dropped from $440 in March 2019 to $127 as of September 27 - a loss of 71%.  
Due to these massive crises, Boeing's stock returns have become unhinged from that of the S&P 500 index. A linear regression of the monthly returns of the Vanguard S&P 500 Index and Boeing yields a very high beta of 1.35 (slope of the regression line). The value of 1.35 is the coefficient of the monthly returns of the Vanguard S&P 500 Index ETF (VOO).  Yahoo Finance displays a beta of 1.36 based on 5-year monthly returns.  One can expect any change in the Vanguard ETF to be magnified by Boeing.  For every 1% change in monthly returns of the S&P 500 index, Boeing's monthly returns are expected to change by 1.35%. Also, just 25% (Adjusted R-Squared in the RStudio output below) of Boeing's returns are explained by the monthly returns of the S&P 500 Index.  

Exhibit: Vanguard S&P 500 Index ETF and Boeing Monthly Returns [June 2019 - August 2022]

Vanguard S&P 500 Index ETF and Boeing Monthly Returns [June 2019 - August 2022]
(Source: Data Provided by IEX Cloud, Author Calculations Using RStudio)

Here's the output from the linear regression conducted on RStudio: 

> lmBAVOO = lm(BA_Monthly_Return~VOO_Monthly_Return, data = VOOandBA)

> summary(lmBAVOO)

Call:

lm(formula = BA_Monthly_Return ~ VOO_Monthly_Return, data = VOOandBA)


Residuals:

     Min       1Q   Median       3Q      Max 

-0.26036 -0.07433 -0.00562  0.07323  0.33452 


Coefficients:

                   Estimate Std. Error t value Pr(>|t|)    

(Intercept)        -0.02348    0.02007  -1.169 0.249682    

VOO_Monthly_Return  1.35442    0.36247   3.737 0.000628 ***

---

Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1


Residual standard error: 0.1229 on 37 degrees of freedom

Multiple R-squared:  0.274, Adjusted R-squared:  0.2543 

F-statistic: 13.96 on 1 and 37 DF,  p-value: 0.0006279




      

    


 

  

 

 

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