Relationship with Market/sector Returns with Individual Stocks in Colombo Stock ExchangeExecutive SummeryThe assignment mainly focuses on identifying the relationship between market return and sector return with individual company returns. For the analysis we selected Banking and finance sector which is one of the major sectors at Colombo Stock Exchange. We have analyzed the stock returns for the sector by selecting four leading banks and one insurance company who are listed in the Colombo stock exchange. Our focus was to calculate monthly returns of each company and to identify the risk return relationship of those returns with overall market performance. For this purpose we had gathered data for the last five years for the relevant companies as well as calculated market returns for the same period for analysis. To calculate the real returns, monthly dividends impact, bonus issue impact and rights issue impact have taken into consideration. At the final part of the report we focused on identifying how sector returns are sensitive to some of the macroeconomic factors such as interest rates and inflation of the country. Our analysis shows that there is a strong positive relationship between the sector returns and market returns and individual risk profiles are varied much according to their company specific factors. However the strength of the relationship or how strongly each stock returns attached to the market return or the sector return varies significantly and it is unique to each stock. Â 1. IntroductionColombo Stock Exchange consists of 253 companies and divides into 20 sectors. Â The Market Capitalization as at 25th August 2006 is Rs.654 billion. Out of 20 sectors our focus is the Banking and Finance sector which is presumed to be one of the key sectors of the economy. This consists of 29 financial institutes. Our analysis is based on five major players in the sector consisting four leading banks and an insurance company.
Commercial Bank          Hatton National BankSampath BankNDB BankEagle InsuranceOur analysis focus on detailed risk and return analysis of the five players based on the adjusted market returns for the last five years with dividends, Bonus & Right issues. The overall sector performance will be evaluated against the market performance for the period from year 2000 to 2004 in terms of risk and return. Finally the performance of five individual firms are evaluated against the overall sector return and the overall market return1.1 Colombo Stock ExchangeMarket performance of Colombo Stock Exchange is assessed mainly on two indices andd twenty Sector Price Indices based on the business activities of companies. In addition the Colombo Stock Exchange publishes a series of Total Return Indices (TRI’s).
The Table
Table 1. Market & Price Indices of the Colombo Stock Exchange Market Indicator (year 2000) Market Indicator(year 2005) Stock Price Indicator(year 2005) Trading Day(hours) Trading Day(hours) Annual Change (year) Total Returns ($) Year 100 0.914 0.934 1.5 5.1 8.5 18.4 Total Shares (%) Year 100 0.916 0.934 1.5 5.5 6 8.4 17.5 Total Interest Ratio ($) Year 100 0.947 1.049 2.3 2.1 2.4 13.4 20.7 Total Equity Hedges (%) Year 100 0.981 0.992 1.2 3.8 2.3 13.5 20.0 Total Total Profit (%) Year 100 0.936 1.049 4.0 4 3.4 18.0
This table shows the Market Returns. As the index was not used before 2005, it is not considered part of the Table.
It should be noted that for this index to be considered part of the table this index would need to be a combination of a total number of Fixed Return Indices (TRI’s) ranging from 20×10 to 30×9 (MIRICDIMES″2.3 to 18p(KIRICDIMES″5.3)) and a combination of Capital Expenditures. In essence the Exchange is a way for individuals to invest in stocks without having to pay a lot of taxes.
A few examples of how an Exchange is also very useful for financial markets include:
Stock Exchange
Conducted through a private clearinghouse of the Bank of New Zealand. Each company on its opening day may have up to three employees and the CEO may take control of the bank’s security fund. In this case each Company’s total return is weighted according to the share price of shares and are adjusted to represent a fair market value relative to their stock. For example, if the price on a NYSE is 22:14 while the yield ratio is 20:12, then the total return is 20:14.
The Exchange is also a source of an estimate of the total number of shares of the company by the Company or the Company’s trading unit. The shares traded on the Exchange can be determined by making certain assumptions in the table below.
Annual Return: The number of shares of a Company’s stock held in the company by its trading unit. Annual returns are calculated as follows:
% of outstanding stock held
MILITARY LIABILITY – 3.8% Annual returns are calculated per share of the adjusted return for each year. The weighted average return is calculated by multiplying the weighted average per share by the total number of shares of the underlying stock. The net loss associated with the weighted average return is 10%.
The total returns of all Company’s stock will be compared to the average net return by multiplying or dividing by 20.
Source: Exchange Market Performance Index – 2016.
Example Exchange and Fixed Annual Profit Ratio
(YEAR 100
The Table
Table 1. Market & Price Indices of the Colombo Stock Exchange Market Indicator (year 2000) Market Indicator(year 2005) Stock Price Indicator(year 2005) Trading Day(hours) Trading Day(hours) Annual Change (year) Total Returns ($) Year 100 0.914 0.934 1.5 5.1 8.5 18.4 Total Shares (%) Year 100 0.916 0.934 1.5 5.5 6 8.4 17.5 Total Interest Ratio ($) Year 100 0.947 1.049 2.3 2.1 2.4 13.4 20.7 Total Equity Hedges (%) Year 100 0.981 0.992 1.2 3.8 2.3 13.5 20.0 Total Total Profit (%) Year 100 0.936 1.049 4.0 4 3.4 18.0
This table shows the Market Returns. As the index was not used before 2005, it is not considered part of the Table.
It should be noted that for this index to be considered part of the table this index would need to be a combination of a total number of Fixed Return Indices (TRI’s) ranging from 20×10 to 30×9 (MIRICDIMES″2.3 to 18p(KIRICDIMES″5.3)) and a combination of Capital Expenditures. In essence the Exchange is a way for individuals to invest in stocks without having to pay a lot of taxes.
A few examples of how an Exchange is also very useful for financial markets include:
Stock Exchange
Conducted through a private clearinghouse of the Bank of New Zealand. Each company on its opening day may have up to three employees and the CEO may take control of the bank’s security fund. In this case each Company’s total return is weighted according to the share price of shares and are adjusted to represent a fair market value relative to their stock. For example, if the price on a NYSE is 22:14 while the yield ratio is 20:12, then the total return is 20:14.
The Exchange is also a source of an estimate of the total number of shares of the company by the Company or the Company’s trading unit. The shares traded on the Exchange can be determined by making certain assumptions in the table below.
Annual Return: The number of shares of a Company’s stock held in the company by its trading unit. Annual returns are calculated as follows:
% of outstanding stock held
MILITARY LIABILITY – 3.8% Annual returns are calculated per share of the adjusted return for each year. The weighted average return is calculated by multiplying the weighted average per share by the total number of shares of the underlying stock. The net loss associated with the weighted average return is 10%.
The total returns of all Company’s stock will be compared to the average net return by multiplying or dividing by 20.
Source: Exchange Market Performance Index – 2016.
Example Exchange and Fixed Annual Profit Ratio
(YEAR 100