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International School of Business & Media; Kolkata

Co-relation between BSE sensex and gold


price.
Abhijit Samanta
(Q) Take the Sensex and Gold Price for last one month.

Q1. Draw the Scatter Diagram.


Q2. Calculate the value of Co-relation coefficient (r).
Q3. Estimate the two regression equation.

SOLUTION: - (Q - 1)

In the chart below we have taken the data from 01 July 2009 to 21st August 2009 (38 days). There we
take the value of Sensex as "x" and the value of Gold Prices as "y".

Sl. Date Sensex Gold Price


(x) (y) Rs./10
Gram
1 1-Jul-09 14494 14,580.00
2 2-Jul-09 14646 14,440.00
3 3-Jul-09 14658 14,490.00
4 4-Jul-09 14913 14,470.00
5 7-Jul-09 14043 14,590.00
6 8-Jul-09 14170 14,615.00
7 9-Jul-09 13769 14,615.00
8 10-Jul-09 13757 14,510.00
9 11-Jul-09 13504 14,485.00
10 14-Jul-09 13400 14,585.00
11 15-Jul-09 13854 14,655.00
12 16-Jul-09 14253 14,745.00
13 17-Jul-09 14250 14,825.00
14 18-Jul-09 14745 14,795.00
15 21-Jul-09 15191 14,940.00
16 22-Jul-09 15062 14,920.00
17 23-Jul-09 14843 14,935.00
18 24-Jul-09 15231 14,972.00
19 25-Jul-09 15379 14,955.00
20 28-Jul-09 15375 15,020.00
21 29-Jul-09 15332 14,985.00
22 30-Jul-09 15173 14,765.00

2
23 31-Jul-09 15388 14,725.00
24 1-Aug-09 15670 14,700.00
25 4-Aug-09 15924 14,850.00
26 5-Aug-09 15831 14,810.00
27 6-Aug-09 15904 14,920.00
28 7-Aug-09 15514 14,945.00
29 8-Aug-09 15160 14,970.00
30 11-Aug-09 15010 14,870.00
31 12-Aug-09 15075 14,810.00
32 13-Aug-09 15020 14,885.00
33 14-Aug-09 15518 14,970.00
34 15-Aug-09 15412 15,034.00
35 18-Aug-09 14785 14,905.00
36 19-Aug-09 15035 14,890.00
37 20-Aug-09 14810 14,905.00
38 21-Aug-09 15012 14,925.00

Source of Data: - www.timesofindia.indiatimes.com (Times of India E-papers.)

Scatter Diagram of Sensex and Gold Price


15,100.00

15,000.00
y = 0.175x + 12178
14,900.00
R² = 0.429
Gold Price

14,800.00 Gold Price (y)


Rs./10 Gram
14,700.00

14,600.00 Linear (Gold


Price (y)
14,500.00 Rs./10 Gram )

14,400.00
13000 13500 14000 14500 15000 15500 16000 16500

Sensex

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In the Scatter Diagram the "X" axis denotes the values of Sensex and the "Y" axis denotes the values of
Gold Prices corresponding to the sensex values on the same day.

Interpretation :-

1. The line passing through the different points of the scatter diagram have an upward movement
or have a positive (+ve) slope.
2. It suggests that Sensex and Gold Price are positively co-related to each other. In other word
when Sensex Increase, Gold price also increases and when Sensex decreases Gold Price also
decreases.
3. Scatter Diagram shows the value of co-relation coefficient (r) = 0.655 which is >0.5 and <1.0. It
shows that Sensex and Gold Prices are highly positively co-related with each other.

SOLUTION: - (Q - 2)

Calculation of Co-relation coefficient "r"

By Direct Excel Formula


Sensex Gold Price Co-relation
(X) (Y) Rs./ 10 Coefficient
Gram "r".

14,494 14,580 0.6556


14,646 14,440
14,658 14,490
14,913 14,470
14,043 14,590
14,170 14,615
13,769 14,615
13,757 14,510
13,504 14,485
13,400 14,585
13,854 14,655
14,253 14,745
14,250 14,825
14,745 14,795
15,191 14,940
15,062 14,920
14,843 14,935
15,231 14,972
15,379 14,955

4
15,375 15,020
15,332 14,985
15,173 14,765
15,388 14,725
15,670 14,700
15,924 14,850
15,831 14,810
15,904 14,920
15,514 14,945
15,160 14,970
15,010 14,870
15,075 14,810
15,020 14,885
15,518 14,970
15,412 15,034
14,785 14,905
15,035 14,890
14,810 14,905
15,012 14,925

By manual calculation :-
Sensex Gold Price X2 Y2 X.Y covarian SD of x SD of y co-relation
(X) (Y) Rs./ 10 ce of x (ℓx) (ℓy) coefficient
Gram and y (r)
{cov
(x,y)}
14,494 14,580 210076036 212576400 211322520 74690.09 652.12362 174.68806 0.6556
14,646 14,440 214505316 208513600 211488240
14,658 14,490 214856964 209960100 212394420
14,913 14,470 222397569 209380900 215791110
14,043 14,590 197205849 212868100 204887370
14,170 14,615 200788900 213598225 207094550
13,769 14,615 189585361 213598225 201233935
13,757 14,510 189255049 210540100 199614070
13,504 14,485 182358016 209815225 195605440
13,400 14,585 179560000 212722225 195439000
13,854 14,655 191933316 214769025 203030370
14,253 14,745 203148009 217415025 210160485
14,250 14,825 203062500 219780625 211256250

5
14,745 14,795 217415025 218892025 218152275
15,191 14,940 230766481 223203600 226953540
15,062 14,920 226863844 222606400 224725040
14,843 14,935 220314649 223054225 221680205
15,231 14,972 231983361 224160784 228038532
15,379 14,955 236513641 223652025 229992945
15,375 15,020 236390625 225600400 230932500
15,332 14,985 235070224 224550225 229750020
15,173 14,765 230219929 218005225 224029345
15,388 14,725 236790544 216825625 226588300
15,670 14,700 245548900 216090000 230349000
15,924 14,850 253573776 220522500 236471400
15,831 14,810 250620561 219336100 234457110
15,904 14,920 252937216 222606400 237287680
15,514 14,945 240684196 223353025 231856730
15,160 14,970 229825600 224100900 226945200
15,010 14,870 225300100 221116900 223198700
15,075 14,810 227255625 219336100 223260750
15,020 14,885 225600400 221563225 223572700
15,518 14,970 240808324 224100900 232304460
15,412 15,034 237529744 226021156 231704008
14,785 14,905 218596225 222159025 220370425
15,035 14,890 226051225 221712100 223871150
14,810 14,905 219336100 222159025 220743050
15,012 14,925 225360144 222755625 224054100
565,11 562,006 8420089344 8313021290 83606069 ←Total
0 25 (∑)
Frequency = Total No. of Observation = 38

Interpretation of the value of r :-

1. Here the value of r is positive (+ve), which suggests that both the variable i.e.:- Sensex & Gold Price
are positively correlated with each other.

2. In other words when Sensex increases the Gold Price also increases and when Sensex decreases the
Gold Price also decreases.

3. r = 0.6556 which states that 0.5 < r < 1.0. In other words the both the variables are highly positively
correlated with each other. It means change in one variable causes a change in the other variable with a
higher proportion.

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SOLUTION: - (Q - 3)

Estimation of Regression Equations:-

Regression
X Y Coefficient
Mean 14871.3158 14789.6316 x on y (bxy) 2.4476
SD 652.1236 174.6881 y on x (byx) 0.1756
r 0.6556
cov(x,y) 74690.0900

1. Regression equation of x on y:-


x = 2.448 *y - 21327.463

Mean of x - (bxy*mean of y)
-21327.46263

2. Regression equation of y on x:-


y = .1756 * x + 12177.756

Mean of y - (byx * mean of x)


12177.75581

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