Tuesday, October 10, 2023

Paccar: Peak Demand For Trucks

 Paccar (PCAR) produced 185,900 trucks in 2022 and is on track for another record year in 2023. The company has experienced good revenue growth in 2021 and 2022. The company has experienced stellar gross and operating margins over the past few years. The company registered a 16% gross and 13% operating margin in 2022. The current fiscal year, 2023, may bring even more good news on the margin front. The company registered a 20% gross and 17% operating margin in its March 2023 quarter and maintained its 17% operating margin in June 2023. 

Unfortunately, the demand for trucks may have peaked, given high-interest rates, high inflation, and waning consumer demand. Some of the strength in the truck market was due to the stimulus and subsidies provided by the U.S. Federal Government that bolstered infrastructure spending and brought about a manufacturing renaissance in this country. Although the bills passed by Congress in 2022 have more spending left for a few more years, the weakening consumer and lack of demand in the real estate sector may counteract the spending by the Federal Government. Fiscal year 2023 may be as good as it gets for Paccar. The stock has performed well over the past year, and its dividend yield has fallen. Dividend income seekers may have to wait for a much higher dividend before buying the stock. Treasury rates have increased enough that bonds offer an attractive alternative for investors waiting for a higher yield. Due to these reasons, I rate it a hold.

Exceptional performance of Paccar.

Paccar has performed exceptionally well over the past year, gaining 50% (Exhibit 1). The stock has handily outperformed the S&P 500, which has returned 15% over the past year. Cummins (CMI) gained just 3% over the past year. Year-to-date, the stock has gained 33% compared to the 12% return of the S&P 500 Index (SP500). The Vanguard Industrials Index Fund ETF (VIS) has had a great year, with a return of 16% over the past year. The industrial sector has benefitted from the stimulus and subsidy spending by the U.S. Federal Government. Although more subsidy spending is left in the coming years under the bill authorized by Congress in 2022, a combination of high interest rates and a slowing global economy may cap any upside in this stock.

Exhibit 1: 

Performance of Paccar, S&P 500, and Cummins

Performance of Paccar, S&P 500, and Cummins (Seeking Alpha)

Fully valued

Although the stock, trading at a forward GAAP PE of 11.4x, looks undervalued compared to its five-year average of 14.4x, given the economic environment and the rate increase, this lower valuation may be deserved. The Vanguard Industrial Index ETF (VIS) may be overvalued, trading at a weighted average PE of 20x and a price/book ratio of 4x. The EV/EBITDA multiple may better assess the company’s valuation. The stock trades at a 10.2x forward EV/EBITDA multiple compared to the sector median of 10.7x. This indicates the stock may be fully valued. Cummins (CMI), a Paccar peer, looks undervalued, trading at a 7.8x forward EV/EBITDA multiple.

Dividends, buybacks, and debt.

Given the stock's performance over the past year, the yield has dropped to 1.2%. The Vanguard Industrials ETF offers a yield of 1.4%, and the Vanguard S&P 500 Index ETF yields 1.58%. The payout ratio is 12%, a rather conservative number. But, given the cyclical nature of the truck business, Paccar may be suitable to be cautious with its payout. A low payout may also free up cash for stock repurchases. The company paid $483 million in total dividend payments over the trailing twelve months. The company has grown its dividend annually at the pace of 7.5%, compared to 6.8% for the sector, over the past five years.

Paccar has spent $828 million in share buybacks over the past decade. But, the company has issued over $300 million in stock over the past decade, blunting the share buybacks' effects. The diluted share count is reduced from 532.8 million in 2013 to 524.1 million over the trailing twelve months, just 8.7 million. Using this share count reduction, the average price paid for the buybacks is $95 compared to its current price of $86.

The company generated $5.4 billion in EBITDA during the trailing twelve months. Paccar generated $3.5 billion in operating cash and $2.37 billion in free cash flow. This free cash flow number is derived by deducting the company’s capital expenditures from its operating cash. These numbers are good, but investors should remember that 2022 was one of the strongest years for truck demand globally, and 2023 is shaping to be another good year. I am concerned these good times, and any demand reduction could dent its cash flows. Also, the company generates a lot of revenue from its financing division. If the economy slows further and demand wanes, it could increase bad loans and decrease the demand for new loans, as the U.S. Treasury rates have increased to their highest levels in over a decade.

Paccar has performed exceptionally well over the past decade, returning 237% on a total return basis compared to the 210% return of the S&P 500 Index. But, weakening consumers coupled with high rates may put a substantial dent in demand across the various sectors of the economy. The stock’s performance has been impressive, and the industrial sector has been strong over the past year. Most of this strength may be attributed to the various bills passed by the U.S. Congress that have billions of dollars in outlays for renewable energy, electric vehicles, infrastructure modernization, and efforts to re-shore manufacturing and build semiconductor plants. Investors should be concerned that most of the demand across the industrial sector and Paccar is driven not by consumer organic demand but by the government's industrial policy. Paccar’s strength may not last, and it may be best for investors to wait for a much lower entry point.

Saturday, June 17, 2023

The Industrials Sector is on a Tear

 The Vanguard Industrials Index ETF (VIS) touched a 52-week high of $202.86 on Friday, June 16 (Exhibit 1).  

Exhibit 1:

Vanguard Industrial Index ETF (VIS) 5-Day Performance
Source: Seeking Alpha


The top performer in this ETF was Vertiv Holdings, returning 133% over the past year (as of June 16, 2023). The company describes itself as follows:

"Vertiv is a global leader in the design, manufacturing and servicing of critical digital infrastructure for data centers, communication networks, and commercial and industrial environments. Our customers operate in some of the world's most critical and growing industries, including cloud services, financial services, healthcare, transportation, manufacturing, energy, education, government, social media, and retail." (Source: SEC.GOV)

This renewed interest in data centers is not surprising, given the popularity of artificial intelligence (AI) and the investments in new applications powered by AI. 

In the Q1 2023 Earnings call, Vertiv's management said the following about AI:

"We are distinctly seeing the first signs of the AI investment cycle in our pipelines and orders. Vertiv is uniquely positioned to win here, given our market leadership and deep domain expertise in areas like thermal management and controls, which are vital to support the complexity of future AI infrastructures." (Source: Seeking Alpha)

"Let me go back to the investments in AI. You may have heard it as generally characterized as the next infrastructure arms race, Vertiv benefits from this race and is an agnostic partner of choice to the risk participants. The acceleration in investment in AI will turn into a net infrastructure capacity demand acceleration, and this starts to be visible in our pipeline. AI applications’ demand and net capacity increase in the industry, higher power density, a gradual migration to an air and liquid hybrid cooling environment and a transition to liquid-ready facility designed." (Source: Seeking Alpha)

 Here's the list of the top 10 performers in the Vanguard Industrials Index ETF over the past year (Exhibit 2).  

Exhibit 2:

Top 10 Performers in the Vanguard Industrials Index ETF
Source: Barchart.com, Data Provided by IEX Cloud

 
Here's the list of the bottom 10 worst performers in the Industrials ETF over the past year (Exhibit 3):

Exhibit 3:

Bottom 10 Worst Performers in the Vanguard Industrials Index ETF
Source: Barchart.com, Data Provided by IEX Cloud


Sunday, February 12, 2023

The Chemours Company had a fantastic start to 2023

The Chemours Company is a diversified chemical company serving multiple industries. Here are its products:

Exhibit 1:


Here's the graph of the monthly returns of the Vanguard S&P 500 Index ETF and the Chemours Company:  

Exhibit 2:

Source: Data Provided by IEX Cloud, Graph Created Using Microsoft Excel and RStudio

The Chemours Company averaged a monthly return of 2.59% compared to a 1% return for the Vanguard S&P 500 Index ETF (Exhibits 3 & 4). 

Exhibit 3:
Source: Data Provided by IEX Cloud, Calculated Using Microsoft Excel

Exhibit 4:
Source: Data Provided by IEX Cloud, Calculated Using Microsoft Excel

A linear regression of the monthly returns of the Vanguard S&P 500 Index ETF and the Chemours Company estimates the beta (the coefficient of the Vanguard S&P 500 Index) as 1.82. Yahoo Finance estimates the beta as 1.88 based on five years of monthly returns.   

Here's the output from the linear model:  
 
Call:
lm(formula = CC_Monthly_Return ~ VOO_Monthly_Return, data = VOOandCC)

Residuals:
     Min       1Q   Median       3Q      Max 
-0.23930 -0.07880  0.01016  0.07621  0.29157 

Coefficients:
                   Estimate Std. Error t value Pr(>|t|)    
(Intercept)        0.006698   0.018764   0.357    0.723    
VOO_Monthly_Return 1.825643   0.325520   5.608 1.45e-06 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.1224 on 42 degrees of freedom
Multiple R-squared:  0.4282, Adjusted R-squared:  0.4146 
F-statistic: 31.45 on 1 and 42 DF,  p-value: 1.45e-06

The stock had a great January 2023 with a return of 18% compared to a 6.2% return of the Vanguard S&P 500 Index ETF.  

Here's the chart of the monthly returns of the Vanguard S&P 500 Index and the Chemours Company:

Exhibit 5:

Source: Data Provided by IEX Cloud, Calculated Using Microsoft Excel



Saturday, February 11, 2023

Hormel Foods' Lower Returns than the Vanguard S&P 500 Index ETF

Hormel Foods own several iconic brands shown in the images below.  




Source: Hormel Foods Corporation

Hormel Foods (HRL) has averaged a lower monthly return than the Vanguard S&P 500 Index ETF (VOO). The company has averaged a monthly return of 46 basis points compared to 105 basis points for the Vanguard S&P 500 Index ETF (Exhibits 1& 2).     

Exhibit 1:

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

Exhibit 2:
Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel

A linear regression of the monthly returns of the Vanguard S&P 500 Index ETF and Hormel Foods yields a beta of 0.237.  

Here's the output from the linear regression model created using RStudio:

Call:
lm(formula = HRL_Monthly_Return ~ VOO_Monthly_Return, data = VOOandHRL)

Residuals:
      Min        1Q    Median        3Q       Max 
-0.102639 -0.023972 -0.001719  0.022192  0.166993 

Coefficients:
                   Estimate Std. Error t value Pr(>|t|)
(Intercept)        0.002084   0.008249   0.253    0.802
VOO_Monthly_Return 0.237144   0.143102   1.657    0.105

Residual standard error: 0.0538 on 42 degrees of freedom
Multiple R-squared:  0.06137, Adjusted R-squared:  0.03902 
F-statistic: 2.746 on 1 and 42 DF,  p-value: 0.1049

The p-value of 0.1 indicates that the relationship is insignificant at the 95% confidence interval.

Between June 2019 and January 2023, the monthly returns of the Vanguard S&P 500 Index ETF and Hormel Foods had a positive correlation of 0.24. But between September 2020 and August 2021, the correlation was a negative 0.13 (Exhibit: 3). This was when stocks such as Apple, Microsoft, Amazon, and Tesla went on an epic, once-in-a-lifetime run into the trillion-dollar club in terms of market capitalization. Consumer staples stocks such as Hormel Foods went out of favor during this period, dropping 10.8%. 

Exhibit 3:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel and RStudio
Hormel Foods may be the perfect stock to own during a bear market. Its low volatility and, at times, negative correlation with the S&P 500 Index means it performs well when the markets perform poorly.  
 




     

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, January 31, 2023

Why is the stock of Goodyear Tire & Rubber Co. So Volatile?

Goodyear (GT) is a very volatile stock with a beta of 1.86, measured using a linear regression model. This linear regression model used monthly returns for Goodyear and the Vanguard S&P 500 Index ETF (VOO) from June 2019 to January 2023. This beta is one of the highest I have encountered among the stocks I cover (Exhibit 1).

Image: 90% Sustainable Material Demonstration Tire

Source: Goodyear Tire & Rubber Co.


The stock is heavily dependent on the discretionary spending of the consumer. In a downturn, car sales drop, thus affecting Goodyear's sales. The replacement tire sales also drop in an economic slowdown, affecting the company. These might be the reasons behind the high volatility.   

Note: Please click on the image to see an enlarged version.

Exhibit 1: Beta of Stocks in Industrial, Consumer Staples, Technology, and Consumer Discretionary Sectors  

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


Here's the output from the linear regression model:

Call:
lm(formula = GT_Monthly_Return ~ VOO_Monthly_Return, data = VOOandGT)

Residuals:
     Min       1Q   Median       3Q      Max 
-0.21099 -0.10456 -0.01782  0.07052  0.55012 

Coefficients:
                    Estimate Std. Error t value Pr(>|t|)    
(Intercept)        -0.008481   0.021853  -0.388      0.7    
VOO_Monthly_Return  1.869864   0.379106   4.932 1.33e-05 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.1425 on 42 degrees of freedom
Multiple R-squared:  0.3668, Adjusted R-squared:  0.3517 
F-statistic: 24.33 on 1 and 42 DF,  p-value: 1.326e-05

The coefficient for "VOO_Monthly_Return" is the beta for the stock.  This coefficient is also the slope of the line.  The monthly returns of Goodyear have been plotted against the returns of the Vanguard S&P 500 Index ETF (Exhibit 2). Exhibit 3 shows the residuals from the linear regression mode. There is a solid positive monthly return correlation of 0.61 between the Vanguard ETF and Goodyear. There is also a significant relationship between the monthly returns of the Vanguard ETF and Goodyear, with a p-value of 1.3e-05.     

Exhibit 2: Monthly Returns Plot of the Vanguard S&P 500 Index ETF and Goodyear Tires

Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel, and Graph Plotted Using RStudio


Exhibit 3: Residuals from the Linear Regression of the Vanguard S&P 500 Index ETF and Goodyear Tires Monthly Returns
Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel, and Graph Plotted Using RStudio



Thursday, December 15, 2022

J.M. Smucker's Low Correlation With The Vanguard S&P 500 Index ETF

 J.M. Smucker is known for its iconic and timeless consumer staples brands (Exhibit 1)

Note: Click on each image in this blog post to view an enlarged version

Exhibit 1:

Brands Owned by J.M. Smucker & Co. (Source: J.M. Smucker)

Here's the histogram of monthly returns for J.M. Smucker between June 2019 and November 2022 (Exhibit 2).


Exhibit 2:

J.M. Smucker (SJM) Histogram of Monthly Returns (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel)

The average monthly return for J.M. Smucker is less than the Vanguard S&P 500 Index ETF (Exhibit 3).
Exhibit 3:
 J.M. Smucker Monthly Return Statistics - Average, First Quartile, Third Quartile, Standard Deviation, Highest Monthly Return, Lowest Monthly Return (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel)

J.M. Smucker had a lower standard deviation than the Vanguard ETF during this period (Exhibit 4). A company with a lower standard deviation than the well-diversified ETF, a measure of volatility, is an infrequent occurrence. 

Exhibit 4:
Vanguard S&P 500 Index ETF Monthly Return Statistics - Average, First Quartile, Third Quartile, Standard Deviation, Highest Monthly Return, Lowest Monthly Return (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel)

Here's a graph of the monthly returns of the Vanguard ETF (x-axis) and J.M.Smucker (y-axis) with the fitted regression line (Exhibit 5).
Exhibit 5:
Monthly Return Graph of the Vanguard S&P 500 Index ETF and J.M. Smucker (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel & RStudio) 

The correlation of the monthly returns between June 2019 and November 2022 between the Vanguard ETF and J.M. Smucker is a low 0.19 (Exhibit 5). The fitted linear regression line has a p-value of 0.23, indicating that the relationship is insignificant at the 95% confidence interval. 

The fitted linear regression line has a p-value of 0.23, indicating that the relationship is insignificant at the 95% confidence interval. Here's the output from the linear regression:

> summary(lmVOOSJM)

Call:
lm(formula = SJM_Monthly_Return ~ VOO_Monthly_Return, data = VOOandSJM)

Residuals:
      Min        1Q    Median        3Q       Max 
-0.089842 -0.034389  0.002403  0.022171  0.118077 

Coefficients:
                   Estimate  Std. Error t value  Pr(>|t|)
(Intercept)        0.005011   0.007476   0.670    0.507
VOO_Monthly_Return 0.157911   0.130216   1.213    0.232

Residual standard error: 0.04755 on 40 degrees of freedom
Multiple R-squared:  0.03546, Adjusted R-squared:  0.01135 
F-statistic: 1.471 on 1 and 40 DF,  p-value: 0.2324

The beta for J.M. Smucker is 0.15, but the high p-value is a concern. This beta (the coefficient of VOO_Monthly_Return) may not be the true value. Yahoo Finance has calculated a beta of 0.24.    

  

Tuesday, December 13, 2022

Eastman Chemical's Monthly Returns Have a High Correlation with the Vanguard S&P 500 Index ETF

Here's the histogram of monthly returns for Eastman Chemical (EMN) between June 2019 and November 2022 (Exhibit 1). Please click on the image to see an enlarged version.  

Exhibit 1:

Eastman Chemical Histogram of Monthly Returns (Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel)

  The average monthly returns of Eastman Chemical are slightly better than that of the Vanguard S&P 500 Index ETF (Exhibit 2 & 3). But Eastman Chemical has a much higher (nearly double) standard deviation (volatility) of monthly returns than the Vanguard S&P 500 Index ETF. 
     

Exhibit 2:

Eastman Chemical Average, First Quartile, Third Quartile, and Standard Deviation of Monthly Returns. (Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel)

Exhibit 3:
Vanguard S&P 500 Index ETF Average, First Quartile, Third Quartile, and Standard Deviation of Monthly Returns. (Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel)

Eastman Chemical moves closely with the market since it has a high positive correlation of 0.78.

> cor(VOOandEMN['EMN_Monthly_Return'], VOOandEMN['VOO_Monthly_Return'], method = c("pearson", "kendall", "spearman"))

                      VOO_Monthly_Return

EMN_Monthly_Return          0.7898654

A linear regression model of the monthly returns of Vanguard S&P 500 Index ETF as the independent variable and Eastman Chemical as the dependent variable yields a beta of 1.54.  

> # Conduct the Linear Regression of the Monthly Returns Between $VOO and $EMN

> lmVOOEMN = lm(EMN_Monthly_Return~VOO_Monthly_Return, data = VOOandEMN)

> # Present the summary of the results from the linear regression

> summary(lmVOOEMN)


Call:

lm(formula = EMN_Monthly_Return ~ VOO_Monthly_Return, data = VOOandEMN)


Residuals:

     Min       1Q   Median       3Q      Max 

-0.12433 -0.04969 -0.01148  0.05611  0.13701 


Coefficients:

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

(Intercept)        -0.003992  0.010914   -0.366  0.716    

VOO_Monthly_Return  1.548548  0.190108    8.146  5.02e-10 ***

---

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


Residual standard error: 0.06942 on 40 degrees of freedom

Multiple R-squared:  0.6239, Adjusted R-squared:  0.6145 

F-statistic: 66.35 on 1 and 40 DF,  p-value: 5.023e-10

The coefficient of VOO_Monthly_Return (slope of the regression line) is the stock's beta. This beta value means that for every 1% change in the monthly returns of the Vanguard S&P 500 Index ETF, Eastman Chemical, on average, changes by 1.54% (monthly). This relationship between the two companies is significant at the 95% confidence interval, given the p-value of 5.02e-10.

This close positive relationship between the two explains why Eastman Chemical has lost 25.6%, while the Vanguard S&P 500 Index ETF (VOO) has lost 14.5%.    



 

Retail Inventory Status - 2024 Holiday Season

 The 2024 holiday shopping season has officially started with Black Friday on November 29. I want to get answers to a couple of questions: ...