Comparison Between Gold Rates and Sensex Essay

Correlation Correlation is a statistical technique that buttocks show whether and how strongly pairs of variables argon related. Correlation is computed into what is known as the coefficient of correlational statistics coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one(a) protection moves, either up or down, the other security allow 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 correlated will move in the foeman 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 pendant variable and one or more independent variables.Case abstractThe initial analysis compares two Asset index tolls the SENSEX and the GOLD. The Sensex has t he top 30 stocks. The bills is an important Asset in terms on enthronization as it also offers the benefit on diversifying the Portfolio risk.To apply the Correlation and reversion concept, we take away an investor who plans to invest in meretricious looking at the erect in the gold prices. He is still reluctant if he should pick let out Gold as an investment funds option or if he should consider investing in some other investment options based on Sensex. as on 15th September 2012.Hence, he plans to carry out a research on the same, for which he attends a seminar on enthronement Opportunities. There was a debate amongst the Financial Analysts Does Sensex rates affect Gold prices?Analyst1 Gold prices have been on an uptick since 2000, while the stock market declined from 2000 to 2003 and thus again in 2008. Hence, Sensex fluctuation does not determine the Gold prices i.e. testify in Sensex might not always lead to rise in gold price.Analyst 2 Through the recovery phase t hat 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. pin In sensex.This created a confusion. Hence, to clarify 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 meat on Gold rate but it is very small.