A Study on Stock Co-Movement’s Analysis of Select Bank and IT Company Stocks

Abstract

The risk of a portfolio depends on the co- movement between the security returns forming the portfolio. The coefficient of correlation is an important measure for studying co movement between securities. Banking and IT company’s shares represent sizable share of market portfolio of common investors. In this perspective the present study has been undertaken to help small retail investors who commonly invest in these two major sectors to understand the co movement of returns among Banking and IT industry stocks. This study covers correlation co movement calculation between selected four Banking shares and four IT companies’ shares for a period from 16th June 2014 to 15th June 2015. The correlation between banking shares are more positive compared to correlation between IT company shares. This implies that the banking stocks return more or less move in the same direction. The correlation between Banking and IT Company stocks are either zero or negative which implies that these two sectors shares are not related or move in the opposite direction in terms of return. This implies that banking and IT industry shares are good combinations for portfolio construction which substantially reduces the risk of that particular portfolio.