Data series analysis using R Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Data series analysis using R Case Study Help

From the above charts of various types of moving averages it could be seen that the trend followed by LLY is increasing with a higher rate than JNJ which implies that thgrowth rate of privce for LLY is higher than JNJ and LLY stock would provide higher returns than JNJ.

ARIMA Model

A variant of economic analysis technique, ARIMA is used by financial planners to forecast the optimal portfolio allocation for portfolios of assets over a period of time. The technique is most effective when coupled with a stochastic pricing model. The technique is designed so that it considers all the relevant variables while determining the portfolio allocation.Important variables considered by the model are: expected returns, volatility, and leverage. All these variables determine how investments will perform in the future. It assumes that the portfolio will be in the same shape in the future as it is in today

The ARIMA strategy is most useful for long term investments. The model assumes that the portfolio will continue to be allocated to its current level, irrespective of what the market will do. If the market will go up by two percent, the portfolio will remain at the same level even if the market goes up by ten percent.

However, the assumption is not true. Most investors are not able to identify and exploit the markets well enough to protect their portfolio allocations. This results in a large share of returns going to the people who did not take care of their portfolios at all. This is what we call the 'value trap'.The main advantage of ARIMA is that it takes into consideration the interplay of the market, expected returns, volatility, and leverage. It also considers the impact of changes in the underlying interest rates on portfolio allocations. Thus, it can provide a good solution to the problem of value traps.

There are some people who believe that the price movement has a certain degree of volatility and the trend-following strategies cannot be used to predict the direction of the price movements. They also think that the price of the product will follow the demand and supply in the market. However, you must know that there is nothing wrong with the demand and supply principle in the market but only you have to be able to interpret the information that is provided by these systems.

The idea behind ARIMA is that the more profitable the trades are, the more the market price will be affected by it, therefore the less the average loss will be. To use this to your advantage, you must ensure that your trades are profitable because otherwise you are losing money. In the Forex market there is a risk that you can lose money as well so making sure that you are losing less than you make is a good thing.

The significance of ARIMA in Forex trading is important because it allows traders to make trades that have a better chance of winning instead of simply betting that they will win. When you enter into a Forex trade you want to be profitable and so you should take into consideration the probability of your winning on the trade. ARIMA can help you increase the likelihood of success in Forex trading.

Conclusion

On the basis of above analysis including normal and logarithmic returns, descriptive statistics, ADF Test moving averages and ARIMA model. It could be said that the LLY will perform better than JNJ with high average return and higher increasing trend for forecasted values than JNJ under moving averages approach. Although the stock has a high standard deviation but with its higher returns and increasing trends, LLY seems to perform better in next 100 days......................................

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