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Stocks vs. their underlying commodity – a comparison analysis

Varaona, Daniel and Åström, Jonas (2011)
Department of Business Administration
Abstract
Title: Stocks vs. their underlying commodity – a comparison analysis Seminar date: 2011-01-14 Course: FEKP01; Master thesis, 15 ECTS Authors: Daniel Varaona, Jonas Åström Supervisor: Susanne Arvidsson Key words: Commodities, stocks, return, volatility, correlation, diversification, vertical integration. Aim: Our aim is to investigate to what extent diversification and vertical integration affect return, volatility and correlation of companies in the commodity industry with its underlying commodity. In this way, analysts can make more informed decisions when creating a portfolio. Methodology: Our method consists of finding suitable companies to analyse. For these companies, historical information from Datastream, annual reports, banks and... (More)
Title: Stocks vs. their underlying commodity – a comparison analysis Seminar date: 2011-01-14 Course: FEKP01; Master thesis, 15 ECTS Authors: Daniel Varaona, Jonas Åström Supervisor: Susanne Arvidsson Key words: Commodities, stocks, return, volatility, correlation, diversification, vertical integration. Aim: Our aim is to investigate to what extent diversification and vertical integration affect return, volatility and correlation of companies in the commodity industry with its underlying commodity. In this way, analysts can make more informed decisions when creating a portfolio. Methodology: Our method consists of finding suitable companies to analyse. For these companies, historical information from Datastream, annual reports, banks and corporate websites is retrieved for further analysis. The data obtained from Datastream is processed to find the values for return, volatility and correlation. To get a deeper understanding of the characteristics of the firms, interviews with employees are also carried out. Theoretical framework: We use a variety of theories to help analyse the empirical data we have examined. The theories we use are diversification and vertical integration. Previous research is also presented in the framework. This helps us draw rational conclusions with the theoretical foundation based on our collected data. Empiricism: The empirical section presents relevant facts relating to the companies we have chosen to proceed with for analysis. This comes in the form of corporate information, information surrounding certificates, futures, and the underlying commodities. It also follows with an interview section, where several companies answer question concerning their structure and risks. Conclusion: Findings reveal that stocks and commodity prices can correlate on a high level. The underlying commodities seem to have higher returns than companies within their industry, but diversified companies can have a lower volatility. Stocks are good alternatives to the real commodity if they have moderate diversification, a vertically integrated structure and a non-hedging policy towards their underlying commodity. (Less)
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author
Varaona, Daniel and Åström, Jonas
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Commodities, stocks, return, volatility, correlation, diversification, vertical integration, Management of enterprises, Företagsledning, management
language
Swedish
id
2199481
date added to LUP
2011-01-14
date last changed
2012-04-02 19:14:28
@misc{2199481,
  abstract     = {Title: Stocks vs. their underlying commodity – a comparison analysis Seminar date: 2011-01-14 Course: FEKP01; Master thesis, 15 ECTS Authors: Daniel Varaona, Jonas Åström Supervisor: Susanne Arvidsson Key words: Commodities, stocks, return, volatility, correlation, diversification, vertical integration. Aim: Our aim is to investigate to what extent diversification and vertical integration affect return, volatility and correlation of companies in the commodity industry with its underlying commodity. In this way, analysts can make more informed decisions when creating a portfolio. Methodology: Our method consists of finding suitable companies to analyse. For these companies, historical information from Datastream, annual reports, banks and corporate websites is retrieved for further analysis. The data obtained from Datastream is processed to find the values for return, volatility and correlation. To get a deeper understanding of the characteristics of the firms, interviews with employees are also carried out. Theoretical framework: We use a variety of theories to help analyse the empirical data we have examined. The theories we use are diversification and vertical integration. Previous research is also presented in the framework. This helps us draw rational conclusions with the theoretical foundation based on our collected data. Empiricism: The empirical section presents relevant facts relating to the companies we have chosen to proceed with for analysis. This comes in the form of corporate information, information surrounding certificates, futures, and the underlying commodities. It also follows with an interview section, where several companies answer question concerning their structure and risks. Conclusion: Findings reveal that stocks and commodity prices can correlate on a high level. The underlying commodities seem to have higher returns than companies within their industry, but diversified companies can have a lower volatility. Stocks are good alternatives to the real commodity if they have moderate diversification, a vertically integrated structure and a non-hedging policy towards their underlying commodity.},
  author       = {Varaona, Daniel and Åström, Jonas},
  keyword      = {Commodities,stocks,return,volatility,correlation,diversification,vertical integration,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Stocks vs. their underlying commodity – a comparison analysis},
  year         = {2011},
}