1. Calculate the covariance between profits and market capitalization and what does the covariance indicate about...

1. Calculate the covariance between profits and market capitalization and what does the covariance indicate about the relationship between profits and market capitalization? (positive or negative).

2. Calculate the correlation coefficient between profits and market capitalization and what does this indicate about the relationship between profits and market capitalization? (strong/weak/non-linear relationship) .

Company	Profits ($ millions)	Market Capitalization ($ millions)
Alliant Techsystems	313.20	1891.90
Amazon.com	631.00	81458.60
AmerisourceBergen	706.60	10087.60
Avis Budget Group	-29.00	1175.80
Boeing	4018.00	55188.80
Cardinal Health	959.00	14115.20
Cisco Systems	6490.00	97376.20
Coca-Cola	8572.00	157130.50
ConocoPhillips	12436.00	95251.90
Costco Wholesale	1462.00	36461.20
CVS Caremark	3461.00	53575.70
Delta Air Lines	854.00	7082.10
Fidelity National Financial	369.50	3461.40
FMC Technologies	399.80	12520.30
Foot Locker	278.00	3547.60
General Motors	9190.00	32382.40
Harley-Davidson	599.10	8925.30
HCA Holdings	2465.00	9550.20
Kraft Foods	3527.00	65917.40
Kroger	602.00	13819.50
Lockheed Martin	2655.00	26651.10
Medco Health Solutions	1455.70	21865.90
Owens Corning	276.00	3417.80
Pitney Bowes	617.50	3681.20
Procter & Gamble	11797.00	182109.90
Ralph Lauren	567.60	12522.80
Rockwell Automation	697.80	10514.80
Rockwell Collins	634.00	8560.50
United Stationers	109.00	1381.60
United Technologies	4979.00	66606.50
UnitedHealth Group	5142.00	53469.40

Solutions

Expert Solution

COVARIANCE:

1. BRING DATA IN TO EXCEL SHEET

2. WRITE A FORMULA "=COVAR(ARRAY1,ARRAY2) AND GET THE COVRIANCE BETWEEN TWO VARIABLES

3. If both variables tend to deviate in the same direction (both go above their means or below their means at the same time), then the covariance will be positive

4. FIND MEAN VALUE WITH "AVERAGE" FORMULA IN EXCEL

SO BOTH TREND IN THE SCATTERPLOT CHART SHOWS POSITIVE TREND AND CLEAR POSITIVE RELATIONSHIP.

CORRELATION:

WRITE A FORMULA "=CORREL(ARRAY1,ARRAY2)" TO GET CORRELATION VALUE

CORRELATION VALUE 0.82 IS STRONG POSITIVE LINEAR RELATIONSHIP BETWEEN TWO VARIABLES

FORMULA:

milcah answered 10 months ago

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