analysis of crude oil prices & maersk stock prices

Analysis of stock price and crude oil price of Maersk

QUANTITATIVE METHODS

PROJECT REPORT

On

ANALYSIS OF STOCK PRICE AND CRUDE OIL PRICE OF MAERSK

By

AMAN JINDAL

MANISH KUMAR

MARRI RAMYA KRISHNA

PAVIN PRASAD ABRAHAM

SOURABH KANNOJE

TUSHAR THULKAR

INDIAN INSTITUTE OF MANAGEMENT

KOZHIKODE-673570

October 2015

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ABSTRACT

Linear regression is the most basic and commonly used predictive analysis. Regression

estimates are used to describe data and to explain the relationship between one dependent

variable and one or more independent variables. In the project, we tried to analyze how the

Stock Prices of Maersk are related to the Crude Oil Prices. We have applied Simple

Regression Analysis and from the Scatter Plot and Residual Plot, we have interpreted the

relationship between the two parameters.

From the results obtained we concluded that the impact of Crude Oil Prices was not

Significant on the Stock Prices of Maersk.

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ContentsABSTRACT.........................................................................................................................2

1. INTRODUCTION................................................................................................................4

a. Maersk Group................................................................................................................4

b. Data Source...................................................................................................................5

2. DESCRIPTIVE STATISTICS.............................................................................................6

3. REGRESSION ANALYSIS.................................................................................................8

a. Linear Regression..........................................................................................................9

b. Residual Plot................................................................................................................. 9

CONCLUSION......................................................................................................................10

REFERENCES.......................................................................................................................11

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1. INTRODUCTION

a. Maersk Group

Maersk Group is a Danish business conglomerate. Maersk Group has activities in a variety

of business sectors, primarily within the transportation and energy sectors. It has been the

largest container ship operator and supply vessel operator in the world since 1996. Its most

important subsidiary, Maersk Oil was established in 1962 when Maersk was awarded a

concession for oil and gas exploration and production in the Danish sector of the North Sea.

The importance of Maersk oil in the group can be understood from the fact that it contributes

to 22% of revenue and 68% of the profit of the group. Today, Maersk Oil is engaged in

exploration for and production of oil and gas in many parts of the world. Total oil production

is more than 600,000 barrels per day (95,000 m³/d) and gas production is up to some 1 billion

cubic feet (28,000,000 m³) per day. Most of this production is from the North Sea, from both

the Danish and British sectors, but there is also production in offshore Qatar, in Algeria and

in Kazakhstan.

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This article was published in the Wall Street Journal on 13 th May, 2015. The Maersk Chief

Executive remarked that they won’t be profitable if the crude oil prices fall below $65/barrel.

The oil prices from April 2015 to August 2015 were consistently below $65 a barrel. So we

have tried to understand the implications of above statement using quantitative method tools.

Therefore, we have tried to analyze the degree of relationship between oil prices and stock

prices of the Maersk and other factors that can have any significant impact on profitability of

the business. As over the period, under analysis, there was no significant change on the

Earning per Share value of Maersk.

b. Data Source

We have taken data from 04/01/2015 to 28/08/2015 of Crude oil price and Maersk stock price

for analysis. We have picked up our data from www.bloomberg.com.

Graph 1: Variation of Maersk Stock Prices over the given period

4/1/2

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4/9/2

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4/17/2

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4/25/2

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5/3/2

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5/11/2

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5/19/2

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5/27/2

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6/12/2

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6/20/2

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6/28/2

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7/6/2

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7/22/2

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7/30/2

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8/7/2

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8/15/2

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8/23/2

0150

2000400060008000

10000120001400016000

Maersk Stock Price($ per barrel) Close

Date

Mae

rsk

Stoc

k Pr

ice

Graph 2: Variation of Crude Oil Prices over the given period

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4/1/2

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4/9/2

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4/17/2

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4/25/2

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5/3/2

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5/11/2

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5/19/2

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5/27/2

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6/4/2

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6/12/2

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6/20/2

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6/28/2

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7/6/2

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7/14/2

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7/22/2

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7/30/2

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8/7/2

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8/15/2

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8/23/2

0150

10

20

30

40

50

60

70

Crude oil Price($ per barrel)

Date

Crud

e oi

l Pric

e

2. DESCRIPTIVE STATISTICS

The sample data of oil prices was collected over a period of 5 months. The data were

analyzed using the descriptive statistics function to obtain the following measures. Oil is a

commodity that is linked to almost all industries worldwide. The fluctuation of its price

creates ripples across industries. Before correlating it with the trends in any other industries,

the oil price trends are analyzed here.

Table 1: Descriptive Statistics of Crude Oil Prices

Crude Oil Prices# Variable x

Mean 53.62324

Standard Error 0.651893

Median 56.55

Mode 59.63

Standard Deviation 6.774669

Sample Variance 45.89614

Kurtosis -0.7964

Skewness -0.71589

Range 23.19

Minimum 38.24

Maximum 61.43

Sum 5791.31

Count 108

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Largest(1) 61.43

Smallest(1) 38.24

Confidence Level (95.0%) 1.29230

1

From the table we can see that the crude oil prices are distributed between 38.24 and 61.43,

from the 108 observations. The average price of oil is obtained as 53.623. The standard

deviation of 6.77 for the distribution indicates the degree of deviations of the sample points.

Skewness is -0.71 and the distribution is slightly negatively skewed, with a possible

approximation to Normal. A negative value of kurtosis indicates that the distribution has

lighter tails and flatter peak than normal distribution. The absolute value of skewness and

kurtosis does not exceed 1 which means that the distribution can be approximated to a normal

distribution

The sample data of Maersk Stock prices were studied over same 5 months using the

descriptive statistics function to obtain the following measures. A major part of the business

of Maersk is in the oil industry including exploration, drilling and transportation. This means

the stock price of Maersk is likely to be highly correlated with the oil prices.

Table 2: Descriptive Statistics of Maersk Stock Prices

Maersk Stock Prices # Variable y

Mean 12765.46

Standard Error 95.02276

Median 12585

Mode 13400

Standard Deviation 987.5055

Sample Variance 975167.1

Kurtosis -0.637

Skewness 0.452455

Range 3940

Minimum 10990

Maximum 14930

Sum 1378670

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Count 108

Largest(1) 14930

Smallest(1) 10990

Confidence Level (95.0%) 188.3715

From the table, we can see that the Maersk stock prices are distributed between 10990 and 14930, the

average price of oil is obtained as 12765.46. The standard deviation of 987.50 for the distribution

indicates the degree of deviations of the sample points. Skewness is 0.45 and the distribution is slightly

positively skewed, with a possible approximation to Normal. A positive value of kurtosis indicates that

the distribution has heavier tails and sharp peak than normal distribution.

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3. REGRESSION ANALYSIS

The dependent variable is Maersk Stock Price & independent variable is Crude Oil Prices.

Table 3: Regression Statistics

Multiple R 0.447532242R Square 0.200285108Adjusted R Square 0.192740628Standard Error 887.2501109Observations 108

ANOVAdf SS MS F Significance F

Regression 1 20898324.36 20898324 26.54724 1.19727E-06Residual 106 83444552.49 787212.8Total 107 104342876.9

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept 9267.390274 684.2678973 13.54351 7.32E-25 7910.762614 10624.01793 7910.762614 10624.01793X Variable 1 65.23426486 12.66094442 5.152401 1.2E-06 40.13271113 90.33581859 40.13271113 90.33581859

Regression Statistics

The Regression Linear Equation is y = 65.23x + 9267.39

A slope of 65.23 indicated that for a $1 increase/decrease in crude oil prices implies that there is a

$65.23 increase/decrease in Maersk stock prices.

The value of Pearson coefficient lies between 0 & 1, it shows that there is positive correlation

between oil & stock prices but the value of coefficient of determination is only 0.20 and the standard

error is also very high, hence the relationship between the two variables is not strong enough.

Graph 3: Scatter Plot and Trend line

The above scatter diagram shows the relationship between stock prices (Y-axis) and crude oil prices

(X-axis). A linear curve has been fitted to the scatter plot, showing a positive slope. The equation of

the line is: y = 65.23x + 9267.39 and

R² = 0.20 (where R explains the proportion of variability in y explained by the variability in x)

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Stock Closing Price

Crude Oil Price


a. Linear Regression

Test Hypothesis

1. Hypothesis:

Ho: β1 = 0

H1: β1≠ 0

2. Level of significance:

α = 0.05

3. Test Statistic F=MSR/MSE

4. Rejection rule:

Reject Ho, if F ≥ 3.93

5. F value from Regression analysis: F=26.54

6. Since, 26.54 ≥3.93

We reject the Null hypothesis Ho: β1=0.

The Statistical evidence is strong enough to prove that the stock prices are not

dependent on the oil prices. There is no significant relationship between Stock prices

of Maersk and crude oil prices.

b. Residual Plot

Graph 4: Residual value of Stock Prices vs the Crude Oil Prices

30 35 40 45 50 55 60 65

-1500

-1000

-500

0

500

1000

1500

2000

2500

Residual value vs Crude oil Price

From the above plot is evident that this model form is not adequate to predict the

Stock Price on the basis of Oil Prices alone. There are other factors which influence

the Stock Prices.

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Crude oil price

Residual Value


CONCLUSION

From a regression analysis and residual plot, we can infer that there is no significant relationship between Maersk stock prices and crude oil prices and there are other potential factors at play. Therefore, the market is not significantly influenced by the dropping crude oil prices below $65 and Maersk CEO’s statement. Further investors’ confidence in Maersk stock prices is still high.

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REFERENCES

1. PDF: Linear Regression, Prof: C. Raju2. Managerial Statistics: Gerald Keller3. Maersk Data from: http://www.wsj.com/articles/maersk-oils-business-dependent-on-oil-price-14315335654. www.bloomberg.com

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http://www.wsj.com/articles/maersk-oils-business-dependent-on-oil-price-1431533565

http://www.wsj.com/articles/maersk-oils-business-dependent-on-oil-price-1431533565

analysis of crude oil prices & maersk stock prices

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