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November 2009
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.
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
0.05
0
-0.02 -0.01 0 0.01 0.02 0.03
-0.05
-0.1
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.
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
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
Annexure B