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From the SelectedWorks of Yogendra Sisodia

November 2009

Commodities during Jan 2008 Crisis

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Author SelectedWorks of New Work

Available at: http://works.bepress.com/ysisodia/5


Correlation between Nifty 50 and MCX Comdex during Jan 08 crisis

Here we are finding how the commodity prices (using MCX Comdex commodity index as a commodity proxy)
affects the Nifty spot market. We have taken 3 months data (Dec2007 to Feb 2008) because during Jan 2008 the
trend of Nifty reversed significantly causing Nifty spot and Nifty Futures to crash.

Fig1: Nifty Turnaround in Jan 2008

0.08
0.06
0.04
0.02
0
-0.02 0 10 20 30 40 50
-0.04
-0.06
Comdex Return
-0.08
Nifty Return
-0.1

Fig2: Nifty Return v/s Comdex returns

Nifty (Y Axis) and Comdex (X Axis)


0.1

0.05

0
-0.02 -0.01 0 0.01 0.02 0.03
-0.05

-0.1

Fig3: Scatter Plot of Nifty and Comdex

The descriptive analysis shows that standard deviation of Comdex returns is low i.e. commodities fluctuates less
than equity. Also mean return is positive for MCX Comdex compared to the Nifty 50.

Yogendra Sisodia (SMP-1033)


Comdex Return Nifty Return

Mean 0.001723325 Mean -0.003230381


Standard Error 0.001466788 Standard Error 0.004254433
Median 0.002860557 Median 0.000764733
Mode #N/A Mode #N/A
Standard
Standard Deviation 0.009392029 Deviation 0.027241666
Sample Variance 8.82102E-05 Sample Variance 0.000742108
Kurtosis -0.303345671 Kurtosis 3.13840337
Skewness -0.240914287 Skewness -0.428712633
Range 0.037566885 Range 0.158251288
Minimum -0.017312281 Minimum -0.091046064
Maximum 0.020254604 Maximum 0.067205223
Sum 0.07065632 Sum -0.132445635
Count 41 Count 41

As we know the Regression analysis performs linear regression analysis by using the "least squares" method to
fit a line through a set of observations. We can analyze how a single dependent variable (here Nifty) is affected
by the values of independent variable (MCX Comdex).Some findings are correlation coefficient of 0.5322 which
shows not significant relation between the two asset classes for this volatile duration. Similarly R-Square of .283
tells us that Commodity prices not significant drives the equity market.

Detailed findings of regression analysis are given in annexure A. Annexure B have all data used for calculation.

Conclusion

 Commodities don’t have the huge volatility compared to equity.


 Investors must seriously consider commodities as excellent asset class.

Limitations

 As of March 2010 Commodity Indices Futures can’t be purchased in India (Forwards Contract
Regulation Act).
 Historically Gold and Oil definitively have negative correlation with Equity market.

Annexure A

SUMMARY OUTPUT

Regression Statistics
0.53223
Multiple R 2641
0.28327
R Square 1584
Adjusted R 0.26489
Square 3933
Standard 0.02335
Error 6549
Observatio
ns 41

ANOVA
Significan
df SS MS F ce F
0.008408 0.008408 15.41391 0.000341
Regression 1 729 729 627 39
0.021275 0.000545
Residual 39 606 528
0.029684
Total 40 335

Coefficie Standard Lower Upper Lower Upper


nts Error t Stat P-value 95% 95% 95.0% 95.0%

Yogendra Sisodia (SMP-1033)


- - - -
0.00589 0.003710 1.587768 0.120414 0.013395 0.001613 0.013395 0.001613
Intercept 0757 086 173 253 114 601 114 601
X Variable 1.54374 0.393205 3.926056 0.000341 0.748413 2.339078 0.748413 2.339078
Comdex 5688 206 07 39 094 281 094 281

Annexure B

Date Comdex Close Nifty Close Comdex Return Nifty Return


12-03-2007 2281.31 5865
12-04-2007 2278.89 5858.35 -0.001061357 -0.001134488
12-05-2007 2288.1 5940 0.004033297 0.013841139
12-06-2007 2250.65 5954.7 -0.016502715 0.00247169
12-07-2007 2275.96 5974.3 0.011182878 0.003286112
12-10-2007 2286.48 5960.6 0.004611576 -0.002295789
12-11-2007 2290.01 6097.25 0.001542667 0.022666703
12-12-2007 2303.8 6159.3 0.006003749 0.010125285
12/13/2007 2331.27 6058.1 0.01185325 -0.016566915
12/14/2007 2294.19 6047.7 -0.016033343 -0.001718185
12/17/2007 2268.92 5777 -0.011075893 -0.045793518
12/18/2007 2301.63 5742.3 0.01431362 -0.00602469
12/19/2007 2290.3 5751.15 -0.004934754 0.001540008
12/20/2007 2299.44 5766.5 0.003982802 0.002665476
12/24/2007 2344.43 5985.1 0.019376687 0.037207737
12/26/2007 2355.11 6070.75 0.004545134 0.014209109
12/27/2007 2377.43 6081.5 0.009432637 0.00176922
12/28/2007 2386.73 6079.7 0.003904156 -0.000296023
12/31/2007 2380.36 6138.6 -0.002672492 0.00964135
01-01-2008 2379.35 6144.35 -0.000424396 0.000936257
01-02-2008 2410.43 6179.4 0.012977814 0.005688219
01-03-2008 2432.37 6178.55 0.009060936 -0.000137563
01-04-2008 2455.3 6274.3 0.009382863 0.015378309
01-07-2008 2444.96 6279.1 -0.00422019 0.000764733
01-08-2008 2442.03 6287.85 -0.001199102 0.001392542
01-09-2008 2462.06 6272 0.008168737 -0.002523917
01-10-2008 2432.5 6156.95 -0.012078863 -0.018513758
01-11-2008 2444.51 6200.1 0.004925159 0.006983896
01/14/2008 2458.35 6206.8 0.005645699 0.001080044
01/15/2008 2461.65 6074.25 0.001341464 -0.02158694
01/16/2008 2419.4 5935.75 -0.017312281 -0.023065136
01/17/2008 2421.69 5913.2 0.000946068 -0.003806249
01/18/2008 2404.43 5705.3 -0.007152774 -0.035791573
01/21/2008 2399.69 5208.8 -0.001973307 -0.091046064
01/22/2008 2367.52 4899.3 -0.013496569 -0.061257165
01/23/2008 2385.81 5203.4 0.007695696 0.06021992
01/24/2008 2381.59 5033.45 -0.001770357 -0.033206624
01/25/2008 2430.32 5383.35 0.020254604 0.067205223
01/28/2008 2419 5274.1 -0.004668704 -0.020502808
01/29/2008 2454.05 5280.8 0.014385489 0.001269553
01/30/2008 2461.08 5167.6 0.002860557 -0.021669237
01/31/2008 2448.33 5137.45 -0.005194119 -0.005851517

Yogendra Sisodia (SMP-1033)