Comparison Between Gold Rates and Sensex Essay

Correlation Correlation is a statistical technique that can show whether and how strongly pairs of variables are related. Correlation is computed into what is known as the coefficient of coefficient of correlational statistics coefficient, which ranges mingled with -1 and +1. Perfect prescribed correlation (a correlation co-efficient of +1) implies that as unmatched security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively match will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation they are completely random.Regression analysis It involves identifying the relationship between a dependent variable and one or more independent variables.Case AnalysisThe initial analysis compares two Asset indicant prices the SENSEX and the GOLD. The Sensex has the top 30 clove pinks. The bullion is an important Asset in terms on Investment as it also offers the benefit on diversifying the Portfolio risk.To apply the Correlation and regression concept, we consider an investor who plans to invest in Gold looking at the rise in the gold prices. He is still reluctant if he should ask Gold as an investment pickaxe or if he should consider investing in few other investment options based on Sensex. as on 15th September 2012.Hence, he plans to admit out a research on the same, for which he attends a seminar on Investment Opportunities. There was a debate amongst the Financial Analysts Does Sensex grade affect Gold prices?Analyst1 Gold prices have been on an uptick since 2000, while the stock market declined from 2000 to 2003 and then again in 2008. Hence, Sensex fluctuation does not determine the Gold prices i.e. rise in Sensex might not always lead to rise in gold price.Analyst 2 through and through the recovery phase tha t commenced in 2003, gold prices kept rising.Analyst 1 Gold prices normally appreciates in value.Analyst2 Fluctuations in Gold prices are determined by the fluctuations in Sensex i.e. Decline In sensex.This created a confusion. Hence, to shed light on the confusion he plans to study the price trends of the Gold rates and the Sensex for the dates ranging from June 1st2012 August 31st2012.After checking the correlation he found that the correlation between the closing prices on Gold and Sensex was 0.24 which was weak. Thus, he decided that Sensex rates was not the only factor to consider investment in Gold. Otherwise, Gold is a good option for investment as it provides diversification and hedging in investment.ConclusionCorrelation between Gold and Sensex is 0.24 which is positive and weak. Thus, based on this correlation change in Sensex has an effect on Gold rate exclusively it is very small.