A

MANAGEMENT THESIS

REPORT

ON

“Testing the volatility of selected A grade

securities during the year 2008”

Submitted to:-
Mrs. Roopam Kothari
Faculty :-Finance
INC Adam Smith, jaipur

Submitted by:-
Vimal Sharma
Roll no.:-8NBJP080

A report submitted in partial fulfillment of the

requirements of
THE MBA PROGRAMME
(2008-2010)

1
 Acknowledgement

I would like to express my gratitude to all those who gave me the possibility to
complete this project report. I want to thank the Campus Head, Dr. P.C. Jain, for
giving me permission to commence this report in the first instance, to do the necessary
research work and to use her knowledge. I have furthermore to thank all other faculty
members who gave and confirmed this permission and encouraged me to go ahead
with this project. I am bound to my co-researchers for their stimulating support.

I am deeply indebted to my supervisor, M.T. Guide and our Finance Faculty, Mrs.
Roopam Kothari, INC ASIM JAIPUR, whose help, stimulating suggestions and
encouragement helped me all the time for research and writing of this report

My former colleagues and classmates from INC ASIM Jaipur, and all the faculties who
have helped me in learning all those concepts needed for this report also owe this
gratitude.

I would like to thank all the supporting stuff which helped me in making this report. I
will start from Microsoft Corporation for their MS Office without which nobody can
even think about report making. Then SPSS for Making statistics so easy and handy. In
the last but not the least I would thank my family and friends for their continuous
support and trust on me.

2
 Abstract

Volatility of stock market is the degree to which financial prices tend to fluctuate.
Large volatility means that returns (that is: the relative price changes) fluctuate in a
wide range.

In the recent past there have been perceptions that volatility in the market has gone up;
Inter and Intra-day volatility. News items and some clinical research papers also
provided figures to evidence this argument. SEBI undertook a comprehensive and deep
analysis of volatility by using several statistical techniques to measure and analyze it.
18 countries covering almost all continents- developed as well as emerging markets
and young and old markets- have been analyzed. The results show that the volatility
has not gone up much in the recent past as it has been perceived. Indian stock market
provides a very high rate of return and comparatively moderate volatility. Efficiency of
Indian market appear to have improved in the past few years owing to contraction in
settlement cycles, introduction of derivative products, improvement in corporate
governance practices etc,. Stock market return exhibit informational efficiency and
approximates to normal distribution.

In other words, volatility of the stock refers to the amount of uncertainty or risk about
the size of changes in a security's value. A higher volatility means that a security's
value can potentially be spread out over a larger range of values. This means that the
price of the security can change dramatically over a short time period in either
direction. Whereas a lower volatility would mean that a security's value does not
fluctuate dramatically, but changes in value at a steady pace over a period of time. One
measure of the relative volatility of a particular stock to the market is its beta. A beta
approximates the overall volatility of security's returns against the returns of a relevant
benchmark (usually the S&P is used). For example, a stock with a beta value of 1.1 has
historically moved 110% for every 100% move in the benchmark, based on price level.
Conversely, a stock with a beta of .9 has historically moved 90% for every 100% move
in the underlying index.
3
 Table of Contents

1. Introduction

2. A Look at the Current Stock Market Volatility:-

3. Review of literature

4. Reason of volatility and solution to reduce it

5. Objective Hypothesis and Framework

6. Research design

7. Result and analysis

8. Conclusion and recommendations

9. References

4
 Introduction

The ups and downs of the financial markets are always in the news. Wide price
fluctuations are a daily occurrence on the world's stock markets as investors react to
economic, business, and political events. Of late, the markets have been showing
extremely erratic movements, which are in no way tandem with the information that is
fed to the markets. Thus chaos prevails in the markets with investor optimism at
unexpected levels. Irrational exuberance has substituted financial prudence. Has the
stock market volatility increased? Has the Indian market developed into a speculative
bubble due to the emergence of "New Economy" stocks? Why is this volatility so
pronounced?

In this management thesis I try to analyze these questions in the context of Indian
stock markets. I try to unearth the rationale for these weird movements. i examine the
fundamentalist view put forward by economists who argue that volatility can be
explained by Efficient Market Hypothesis.

On the other hand, the view that volatility is caused by psychological factors is tested.
An empirical study of NSE and a set of representative stocks are carried out to find the
changes in their volatility in the last years. The stock market regulation in introduction
of rolling settlement and dematerialization as a measure of reducing volatility is put to
test.

Thus, this management thesis will help the investors as well as market regulators to
make the markets more efficient. Volatility estimates are used extensively in empirical
research, risk management and derivative pricing by the finance professionals and
researchers. Traditionally, volatility of asset returns has been estimated using sample
standard deviation of close-to-close daily returns and is scaled to estimate volatility for
any period (such as annual, monthly etc.).

5
“A statistical measure of the dispersion of returns for a given security or market
index. Volatility can either be measured by using the standard deviation or variance
between returns from that same security or market index. Commonly, the higher the
volatility, the riskier the security.”
In other words, volatility refers to the amount of uncertainty or risk about the size of
changes in a security's value. A higher volatility means that a security's value can
potentially be spread out over a larger range of values. This means that the price of the
security can change dramatically over a short time period in either direction. A lower
volatility means that a security's value does not fluctuate dramatically,

What is volatility?
“In words volatility is the degree to which
financial prices tend to fluctuate. Large volatility means that returns (that is: the
relative price changes) fluctuate in a wide range.”

Volatility is the variability of the asset price changes over a particular period of time
and it is very hard to predict it correctly and consistently. In financial markets volatility
presents a strange paradox to the market participants, academicians and policy makers
– without volatility superior returns are can not be earned, since a risk free security
offers meager returns, on the other hand if it is ‘high’ it will lead to losses for the
market participants and represent costs to the over all economy.

Therefore there is no gain saying with the statement that volatility estimation is an
essential part in most finance decisions be it asset allocation, derivative pricing or risk
management.

During year 2008 market is more fluctuate so importance of testing volatility is

increased by the investor point of view, so I choose this topic for the management
thesis.

6
Stock prices are changed everyday by the market. Buyers and sellers cause prices to

change as they decide how valuable each stock is. Basically, share prices change

because of supply and demand. If more people want to buy a stock than sell it - the

price moves up. Conversely, if more people want to sell a stock, there would be more

supply (sellers) than demand (buyers) - the price would start to fall.

7
A Look at the Current Stock Market Volatility:-

Current volatility in the stock market is causing chaos in many investors portfolios.
Almost every investor is suffering, and many have lost significant portions of what
they previously had. Over the past 12 months, the news has been pretty bleak, with
some peaks and valleys along the way, but no real end in sight.

Market volatility has caused investors who were invested in things they shouldn't have
been to get out of the market, and other investors have taken advantage in the crash in
prices to gain an adequate stake in the market. As much as we may complain about
market volatility, it is an important part of our economy and has always existed, at
times more than others.

Market volatility is defined as the rate in which a security changes, which is measured
by watching the daily change in market price. Although volatility describes both the up
and downturns in the market, the significant decreases in price is what is generally
most focused on. If a stock is rapidly moving up and down in share price, in significant
amounts, it is known to have a high level of volatility.

If a share price stays relatively the same over a long period of time, it has low
volatility. There is no way to predict market volatility, although many websites try to
convince you that they can predict what will happen in the market. If there were an
easy answer, so many people wouldn't have lost money in this economic downturn.

If you are already invested in a fund, it is probably a good idea not to jump out now, if
you have lost a significant amount of money. Although the market is extremely volatile
right now, over years the rate of volatility usually levels out, so making a rash decision
based on recent activity is a bad idea.

If you are not investing currently but are interested in getting into the market, volatility
is important to keep in mind if you are investing in a mutual fund or hedge fund. It
may be a good idea to contact a licensed investment professional to represent you, as
they have experience in dealing with market volatility.

8
 Literature Review

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure.
The East India Company was the dominant institution in those days and business in its
loan securities used to be transacted towards the close of the eighteenth century. Thus,
at present, there are totally twenty-one recognized stock exchanges in India excluding
the Over The Counter Exchange of India Limited (OTCEI) and the National Stock
Exchange of India Limited (NSEIL).

A study conducted by Rajni Mala and Mahendra Reddy on Measuring Stock

Market Volatility in an Emerging Economy. According to them Volatility may
impair the smooth functioning of the financial system and adversely affect economic
performance. Similarly, stock market volatility also has a number of negative
implications. One of the ways in which it affects the economy is through its effect on
consumer spending. changes in market volatility would merely reflect changes in the
local or global economic environment. Others claim that volatility is caused mainly by
changes in trading volume, practices or patterns, which in turn are driven by factors
such as modifications in macroeconomic policies, shifts in investor tolerance of risk
and increased uncertainty. This article benefits from developments in the measurement
of volatility through econometric techniques. Here, the regime-switching- ARCH
model introduced by Engle (1982) and its extension, the GARCH model, (Bollerslev,
1986) is used to estimate the conditional variance of Fiji’s daily stock return from
January 2001 to December 2005.

Gregory et.al. (1996) examined how volatility of S&P 500 Index futures affects the
S&P 500 Index volatility. Their study also examined the effect of good and bad news
on the spot market volatility. Volatility was estimated using EGARCH model. They
find that bad news increased volatility more than good news and the degree of
asymmetry was higher for futures market.

9
A study conducted by Dante M. Pirouz on National Culture and Global Stock
Market Volatility. according to them Volatility is technically defined as the degree
to which a market rises or falls in a short-period of time (Mullins, 2000). Since the
1970’s volatility in the bond and stock markets has increased globally and stock
market volatility is not only detrimental to investors but also can be harmful to the
stability of national and global economic systems (Gerlach, Ramaswamy, & Scatigna,
2006). The Asian financial crisis of 1997 is only one example of the negative effect
stock market volatility can have on the global financial network and as a result there is
strong interest in both the private and public sectors to understand the antecedents of
global stock market volatility. While volatility worldwide is on the rise, some
countries’ stock markets are more volatile than others. It remains unclear the
underlying factors that cause some global stock markets to have differential volatility.
A great deal of literature is devoted to the study of volatility especially in
understanding what gives rise to volatility, how it can be predicted and measured but
there is still no clear understanding of why global stock markets suffer from volatility,
why global stock markets vary in their volatility or how to predict which markets will
be more volatile than others.

The volatility on the Indian stock exchanges may be thought of as having two
components: The volatility arising due to information based price changes and
Volatility arising due to noise trading/ speculative trading, i.e., destabilizing volatility.
As a concept, volatility is simple and intuitive.

In a large scale, the success of derivatives trading will depend on the choice of
products to be traded in the markets. The popularly traded and usual types of
derivatives are futures and options. The products to be traded in the stock markets need
to have the following characteristics which are mentioned by Tsetsekos Varangis
(2000):

......a sufficiently higher as well as lower level of price volatility to attract

hedgers or speculators, a significant amount of money for speculative motive at a

10
certain level of risk; a significant number of domestic market participants—and
possibly buyers and sellers from abroad; a large number of producers, processors, and
banks interested in using derivatives contracts (that is, enough speculators to provide
additional liquidity); and a weak correlation between the price of the underlying asset
and the price of the already-traded derivatives contract(s) in other exchanges (basis
risk).

Board, Sandamann and Sutcliffe (2001), have tested the hypothesis that increases in
the futures market trading activity increases spot market price volatility. They used the
GARCH model and Schewert Model and found that the result does not support the
hypothesis. The data samples are taken from the U K market. Jeanneau and Micu
(2003) have explained that information based or speculative transaction also creates a
link between volatility and activity in asset and derivatives market. This link depends
in part on whether the new information is private or public and on the type of asset
traded. In theory, the arrival of new private information should be reflected in a rise in
the volatility of return and trading volumes in single equity and equity related futures
and options.

A study conducted by George Panayotov on VOLATILITY ISSUES IN

FINANCIAL MARKETS. In contrast, time-series studies find that more than one
stochastic factor drives asset returns volatility. Engle and Lee (1998) find support for a
model with two volatility factors - permanent (trend) and transitory (mean-reverting
towards the trend). Gallant, Hsu and Tauchen (1999), Alizadeh, Brandt and Diebold
(2002) and Chernov, Gallant, Ghysels and Tauchen (2003) estimate models with one
highly persistent and one quickly mean-reverting volatility factor and show that they
dominate over one-factor specifications for volatility.

Engle and Lee (1998) find that the permanent (or persis-tent) factor in volatility is
significantly positively correlated with the market risk premium, while the transitory
factor is not. Mac Kinlay and Park (2004) confirm the positive correlation of the
permanent volatility factor with the risk premium and also find a time-varying and
typically negative correlation of the transitory volatility factor with the risk premium.

11
Reason of volatility and solution to reduce:-

Reason:-

“Fundamental” factors:-

• Macroeconomic stability - vol of GDP growth

Stabilizing or destabilizing monetary policy, fiscal policy.
• Competition on markets - more competition means more
• uncertain earnings
• Leverage of firms
• Indian firms that graduate into MNCs
• Crises: currency crisis, political crises

Factors internal to the securities markets:-

• Liquidity of the market: be able to absorb shocks to the

order flow.
• Securities trading issues: “adequate” supply of rational
traders - individuals, hedge funds, arbitrageurs.
• Crises: payments crisis, scandal on the market, regulatory
crackdown giving adverse shocks to liquidity.

For reduce volatility:-

“Fundamental” factors:-
• Reduction in GDP growth volatility
• Firms with more equity financing
• Indian firms that are MNCs
• Avoid currency crisis, avoid political crises.

Factors internal to the securities markets:-

• More liquidity
• More rational traders
• Avoid crises : payments crisis, scandal on the market,
• regulatory crackdown giving adverse shocks to liquidity.

12
Objective Hypothesis and Framework:-

The research can be used to measure what is the impact of returns for a given security

or market index. Volatility can either be measured by using the standard deviation or

variance between returns from that same security or market index. This is the

exploratory research which tries to shows the factors which are making stock market

volatile.

Null hypothesis:- market is not volatile

Alternate hypothesis:- market is volatile

 Objective of the study

To study volatility in Indian stock market while taking NIFTY of National

stock exchange as a source of secondary data during year 2008.

 Universe of the study:-

As the study is concern about the volatility testing of A grade securities

during year 2008, the population of the study would be all the securities in Indian

market.

 Sampling of the field of study:-

As a student it was not possible to do the study with the population (universe

of the study) along with our regular studies.

13
So we selected a sample smaller and convenient for the study. so I took a

sample of 50 A grade securities from the Indian market.

14
 Data collection:-
Data used in this study is of secondary in nature. Sensex and Nifty is
taken as a source of information which widely describes Indian stock
market. Here monthly prices of both indexes are taken for the study
purpose.

15
 Research design

To testing the volatility of stock market , I took a sample of 5o A grade company of

nifty. Then I used these company daily prices to test volatility.
I proceed in two ways:-

• I took whole year data and calculate return, variance, beta, systematic risk,
unsystematic risk, total risk.
• Then I took duration of 15 days and follow the same procedure

Steps which I used testing the volatility:-

Step 1: Return is calculated using logarithmic method as follows.

rt = (log pt–log pt-1)*100

where
rt= Market return at the period t
Pt= Price index at day t
Pt-1= Price index at day t–1 and
log = Natural log

step 2: then I calculate the variance of securities and for market value

step3 :- I used SPSS software for regression and find out beta for each securities

step4:- then I calculate the systematic risk of the market

systematic risk= (beta)2 * variance of the market

step5: then I calculate the unsystematic risk of the market

unsystematic risk= total risk – systematic risk
where
total risk= variance of the security

16
step6: then I find correlation between systematic risk and unsystematic risk.
The terms which are used in testing volatility. I described them here:-

1. returns
2. variance
3. regression
4. regression model
5. beta
6. systematic risk
7. unsystematic risk
8. total risk
9. correlation.

Returns:-
The return on the market as a whole, called the market portfolio.
The difference between the return on a stock (or entire portfolio) and the performance
of an index.

Variance:-
A measure of the average distance between each of a set of data
points and their mean value; equal to the sum of the squares of the deviation from the
mean value.
In probability theory and statistics, the variance of a random variable or distribution is
the expected square deviation of that variable from its expected value or mean.
Variance is the measure of the amount of variation of all the scores for a variable.
If a random variable x has expected value(mean) μ = E(X), then the variable var(x) of x
is given by:-

17
Regression:-
In statistics, regression analysis includes any techniques for
modeling and analyzing several variables, when the focus is on the relationship
between a dependent variable and one or more independent variables

Regression model:-

Regression analysis refers to techniques for

modeling and analyzing a number of variables, when the focus is on identifying the
relationship between a dependent variable and one or more independent. More
specifically, regression analysis helps us understand how the typical value of the
dependent variable changes when any one of the independent variables is varied, while
the other independent variables are held fixed. Most commonly, regression analysis
estimates the conditional expectation of the dependent variable given the independent
variables — that is, the average value of the dependent variable when the independent
variables are held fixed. Less commonly, the focus is on a quintile, or other location
parameter of the conditional distribution of the dependent variable given the
independent variables. In all cases, the estimation target is a function of the
independent variables called the regression function. In regression analysis, it is also of
interest to characterize the variation of the dependent variable around the regression
function, which can be described by a probability distribution.

Regression analysis is widely used for prediction (including forecasting of time-

series data). Use of regression analysis for prediction has substantial overlap with the
field of machine learning. Regression analysis is also used to understand which among
the independent variables are related to the dependent variable, and to explore the
forms of these relationships. In restricted circumstances, regression analysis can be
used to infer causal relationships between the independent and dependent variables.

Dependent variable:- particular security

Independent variable:- market return

18
Beta:-

In finance, the beta (β) of a stock or portfolio is a number describing the relation of
its returns with that of the financial market as a whole.

An asset with a beta of 0 means that its price is not at all correlated with the market;
that asset is independent. A positive beta means that the asset generally follows the
market. A negative beta shows that the asset inversely follows the market; the asset
generally decreases in value if the market goes up and vice versa.

The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It
measures the part of the asset's statistical variance that cannot be mitigated by the
diversification provided by the portfolio of many risky assets, because it is correlated
with the return of the other assets that are in the portfolio. Beta can be estimated for
individual companies using regression analysis against a stock market index.

The formula for the beta of an asset within a portfolio is

where ra measures the rate of return of the asset, rp measures the rate of return of the
portfolio, and Cov(ra,rp) is the covariance between the rates of return. In the CAPM
formulation, the portfolio is the market portfolio that contains all risky assets, and so
the rp terms in the formula are replaced by rm, the rate of return of the market.

Beta is also referred to as financial elasticity or correlated relative volatility, and can
be referred to as a measure of the sensitivity of the asset's returns to market returns, its
non-diversifiable risk, its systematic risk, or market risk. On an individual asset level,
measuring beta can give clues to volatility and liquidity in the marketplace. In fund
management, measuring beta is thought to separate a manager's skill from his or her
willingness to take risk.

19
Systematic risk:-

In finance, systematic risk, also sometimes called market risk,

aggregate risk, or undiversifiable risk, is the risk associated with aggregate market
returns. Systematic risk is a risk of security that cannot be reduced through
diversification. It should not be confused with systemic risk, which is the risk that the
entire financial system will collapse as a result of some catastrophic event, not to any
individual's entity.

Unsystematic risk:-

The risk of price change due to the unique circumstances of a specific security, as
opposed to the overall market. This risk can be virtually eliminated from a portfolio
through diversification

Correlation:-
In statistics, correlation (often measured as a correlation
coefficient, ρ) indicates the strength and direction of a relationship between two
random variables. The correlation coefficient ρX, Y between two random variables X and
Y with expected values μX and μY and standard deviations σX and σY is defined as:

where E is the expected value operator and cov means covariance.

Total risk:-

Total risk is equal to the variance of the particular security. And also sum of the
systematic risk and unsystematic risk.

20
 Result and Analysis

I test the volatility step wise step and found some result . analysis of the result shown
below:-

1. When I used whole year data:-

I calculated beta , systematic risk ,unsystematic risk for each securities and
arrange them in a table shown below:-

proportion of proportion of
systematic unsystematic systematic unsystematic
company beta beta2 risk of market risk total risk risk risk

abb 0.769 0.591361 0.000468358 0.000638197 0.001106555 0.42325764 0.57674236

acc 0.616 0.379456 0.000300529 0.000707146 0.001007675 0.298240074 0.701759926
ambujace
ment 0.635 0.403225 0.000319354 0.000908927 0.001228281 0.260000832 0.739999168
bhartiartl 0.746 0.556516 0.000440761 0.000645342 0.001086103 0.40581849 0.59418151
bhel 0.765 0.585225 0.000463498 0.000974247 0.001437745 0.322378552 0.677621448
bpcl 0.488 0.238144 0.00018861 0.001227775 0.001416385 0.133162976 0.866837024
cairn 0.635 0.403225 0.000319354 0.001779347 0.002098701 0.15216753 0.84783247
cipla 0.609 0.370881 0.000293738 0.000370643 0.000664381 0.4421227 0.5578773
dlf 0.801 0.641601 0.000508148 0.002358687 0.002866835 0.17725049 0.82274951
gail 0.628 0.394384 0.000312352 0.001687045 0.001999397 0.156223162 0.843776838
grasim 0.696 0.484416 0.000383657 0.000581113 0.000964771 0.397667078 0.602332922
hcltch 0.647 0.418609 0.000331538 0.001547212 0.00187875 0.176467486 0.823532514
Hdfc 0.768 0.589824 0.000467141 0.001294475 0.001761615 0.265177396 0.734822604
hdfc bank 0.757 0.573049 0.000453855 0.000861297 0.001315152 0.345096919 0.654903081
Herohon
da 0.444 0.197136 0.000156132 0.000531198 0.000687329 0.227157099 0.772842901
Hindalco 0.756 0.571536 0.000452657 0.001696258 0.002148915 0.21064426 0.78935574
Hindunilv
r 0.586 0.343396 0.00027197 0.000433098 0.000705067 0.385735665 0.614264335
Icicibank 0.835 0.697225 0.000552202 0.001924238 0.00247644 0.222982224 0.777017776
Idea 0.667 0.444889 0.000352352 0.001382376 0.001734728 0.203116661 0.796883339
Infosystc
h 0.637 0.405769 0.000321369 0.000622697 0.000944066 0.340409556 0.659590444
Itc 0.636 0.404496 0.000320361 0.000397192 0.000717553 0.446463211 0.553536789
l&t 0.496 0.246016 0.000194845 0.00312704 0.003321884 0.058654866 0.941345134
m&m 0.651 0.423801 0.00033565 0.001229779 0.001565429 0.214414284 0.785585716
Maruti 0.602 0.362404 0.000287024 0.000695838 0.000982862 0.29202889 0.70797111
Nationalu
m 0.539 0.290521 0.000230093 0.002178008 0.002408101 0.095549421 0.904450579
Ntpc 0.814 0.662596 0.000524776 0.000613662 0.001138438 0.460961273 0.539038727
Ongc 0.77 0.5929 0.000469577 0.000622114 0.001091691 0.430137109 0.569862891
Pnb 0.722 0.521284 0.000412857 0.000847382 0.001260239 0.327602166 0.672397834
Powergri 0.767 0.588289 0.000465925 0.000892671 0.001358595 0.342946019 0.657053981

21
d
Ranbaxy 0.459 0.210681 0.000166859 0.001421981 0.00158884 0.105019582 0.894980418
Rcom 0.77 0.5929 0.000469577 0.002020738 0.002490315 0.188561202 0.811438798
Reliance 0.868 0.753424 0.000596712 0.000851861 0.001448573 0.411930751 0.588069249
Rpl 0.801 0.641601 0.000508148 0.001175456 0.001683604 0.301821592 0.698178408
Sail 0.756 0.571536 0.000452657 0.001698581 0.002151237 0.210416815 0.789583185
satyamco
mp 0.509 0.259081 0.000205192 0.001772156 0.001977348 0.103771379 0.896228621
Sbin 0.776 0.602176 0.000476923 0.000868135 0.001345058 0.354574533 0.645425467
Seimens 0.425 0.180625 0.000143055 0.003583402 0.003726457 0.038389009 0.961610991
Ster 0.732 0.535824 0.000424373 0.00187094 0.002295312 0.184886642 0.815113358
Sunphar
ma 0.299 0.089401 7.08056E-05 0.000718039 0.000788844 0.08975864 0.91024136
Suzlon 0.517 0.267289 0.000211693 0.014522521 0.014734214 0.014367437 0.985632563
Tatamoto
rs 0.704 0.495616 0.000392528 0.001232651 0.001625178 0.241529099 0.758470901
Tatapow
er 0.729 0.531441 0.000420901 0.001353555 0.001774456 0.237200115 0.762799885
Tatasteel 0.774 0.599076 0.000474468 0.001707384 0.002181852 0.217461186 0.782538814
Tcs 0.669 0.447561 0.000354468 0.000959462 0.00131393 0.269777112 0.730222888
Unitch 0.685 0.469225 0.000371626 0.00524636 0.005617986 0.06614936 0.93385064
Wipro 0.703 0.494209 0.000391414 0.000980184 0.001371597 0.285370634 0.714629366
Zeel 0.575 0.330625 0.000261855 0.000911479 0.001173334 0.223171825 0.776828175
average= 0.25017002 0.74982998

After of calculation beta I calculated Correlation between systematic risk and

unsystematic risk. The result shown below:-

Correlations

unsystematic systematic
unsystematic Pearson Correlation 1 -.208
Sig. (2-tailed) .161
N 47 47
systematic Pearson Correlation -.208 1
Sig. (2-tailed) .161
N 47 47

** Correlation is significant at the 0.01 level (2-tailed).

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Analysis:-

Since the total risk is categorized into systematic and unsystematic risk , there should
exist a negative correlation between the two components of risk. To test the magnitude
of correlation and its significance the Karl Pearson correlation is calculated at 5%
confidence level. The results show that there exist a negative correlation of -0.208,
which is highly significant at 5% and 1% confidence level. Further when the
proportion of unsystematic risk in the total risk is calculated for the sample companies
it comes out to be .25017. This shows that the proportion of diversifiable risk is .
74983. means there is 75% chance to diversify the risk and 25% chance to face the
risk.

2. When I used data with 15 days duration:-

In this case I calculated beta, systematic risk and unsystematic risk for 15 days
duration. I arranged the result of correlation with significance value in a table
shown below:-

significant or
Company R sig. value insignificant
Abb 0.692 0 Significant
Acc 0.769 0 Significant
Ambuja 0.695 0 Significant
Bharti 0.326 0.12 Insignificant
Bhel 0.554 0.005 Significant
Bpcl 0.264 0.212 Insignificant
Cairn 0.333 0.112 Insignificant
Cipla 0.692 0 Significant
Dlf 0.623 0.001 Significant
Gail 0.579 0.003 Significant
Grasim 0.637 0.001 Significant
Hcltch 0.631 0.001 Significant
Hdfc 0.496 0.014 Insignificant
hdfc bank 0.734 0 Significant
herohonda 0.753 0 Significant
Hindalco 0.758 0 Significant
Hindunilvr 0.721 0 Significant

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 Icicibank 0.582 0.003 Significant
Idea 0.324 0.122 Insignificant
infosystch 0.707 0 Significant
ITC 0.613 0.001 Significant
L&T 0.786 0 Significant
M&M 0.675 0 Significant
MARUTI 0.297 0.159 Insignificant
NATIONALUM -0.007 0.974 Insignificant
NTPC 0.54 0.006 Insignificant
ONGC 0.848 0 Significant
PNB 0.734 0 Significant
POWERGRID 0.248 0.242 Insignificant
RANBAXY 0.558 0.005 Significant
RCOM 0.764 0 Significant
RELIANCE 0.748 0 Significant
RPL 0.533 0.007 Insignificant
SAIL 0.455 0.026 Insignificant
SATYAMCOMP 0.745 0 Significant
SBIN 0.508 0.011 Insignificant
SEIMENS 0.729 0 Significant
STER 0.452 0.026 Insignificant
SUNPHARMA 0.394 0.057 Insignificant
SUZLON 0.566 0.004 Significant
TATAMOTORS 0.816 0 Significant
TATAPOWER 0.525 0.008 Insignificant
TATASTEEL 0.464 0.022 Insignificant
TCS 0.42 0.041 Insignificant
UNITECH 0.507 0.012 Insignificant
WIPRO 0.29 0.169 Insignificant
ZEEL 0.379 0.068 Insignificant

Analysis:-
by this result I analysis that there is 27 securities
out of 47 that are have significance correlation between systematic risk and
unsystematic risk and remaining 20 securities are insignificant in correlation.

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 Conclusion

Through the analysis here I conclude that when I study the market for whole year there
is negative correlation between systematic risk and unsystematic risk which is
significance means they are inversely correlated. The proportion of unsystematic risk
on total risk shows that there 75 % chance to diversify risk in the market. And 25%
risk can be covered through certain techniques like hedging. And during this time
market is highly fluctuate. Market is highly volatile.

And when I study the market for duration of 15 days then the proportion of securities is
high on total securities which I study in respect of significance value of correlation.
There is 27 securities which is significant correlated out of 47 securities.

The current volatility of the market has both encouraged and discouraged some
investors - it is important to understand volatility to be an investor that makes it
through the long term ups and downs of the market.

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 References

1. Zuliu, H, “Stock Market Volatility and Corporate Investment”, IMF

Working
Paper, 1995,pp.95–102.
2. Levine, R. and S. Zervos, “Stock Market Economic Development and
Long–
Run Growth”, World Bank Economic Review, 1996, 10, pp.323–339.
3. Securities Market In India–A Review, 2003–04, p.20.
4. Arestis, P., P.O. Demetriades and K.B. Luintel (2001)”Financial Development
and
Economic Growth: The Role of Stock Markets”, Journal of Money, Credit and
Banking, 33(2):16-41.
5. Bilson, C.M., Brailsford, T.J. and Hooper,V.J. (1999)”Selecting
Macroeconomic
Variables as Explanatory Factors of Emerging Stock Market Returns”.

Magazines
1. Business week
2. Frontline
3. Business world

News papers
1. Business standard
2. Financial express
3. Economic times
4. Times of India
5.

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Websites
1. www.capitalmarket.com .
2. www.wikipedia.org
3. www.google.com
4. www.yahoofinance.com
5. www.moneycontrol.com
6. www.yahoofinance.com

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