Question
What does this graph tell me? PG vs. NASDAQ returns PG vs. NASDAQ returns 2.00% Chart...
What does this graph tell me?
PG vs. NASDAQ returns PG vs. NASDAQ returns 2.00% Chart Area 508 1.00% 0.50% y0.0603x +0.0016 R 0.0073 0.00 -5.00% -4.005 -3.00 -2.00% 1.00% 2.00% 3.00% -0.50% -1.00% -1.50% -2.00%
Answers
This is a regression graph of a PG stock returns (y-axis) v/s NASDAQ returns (x-axis) which is the market. The regression line id drawn using the best fit method and has an equation of y = 0.0603x +0.0016. R2 = 0.0073
from the equation, one can infer that the y varies as 0.0603 times x. i.e. PG stock return changes as NASDAQ return changes. This is called beta of PG. and is equal to 0.0603.
Now whether this regression line is correct or acceptable is determined by R2. R2 is a statistical measure that explains what proportion of the values of dependent variable is explained by the independent variable.
In this case R2 is on the lower side, which means that NASDAQ returns doesnt fully explain the return of Stock PG. Visually too, we can see that PG returns are all over the place (positive and negative) and do not have a consistent path.
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