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Chapter $3$: Assignment

The file P$03\_64.$xIsx lists monthly data since $1950$ on the well$-$known Dow Jones Industrial Average $($DJIA$),$ as well as the less well$-$known Dow Jones Transportation Average $($DJTA$)$ and Dow Jones Utilities Average $($DJUA$).$ Each of these is an index based on $20$ to $30$ leading companies $($which change over time$).$

a$.$ Create a table of correlations of the three difference columns. Round your answers to three decimal places, if necessary.

Linear Correlation Table

Diff$1($DJIA$)$

Diff$1($DJTA$)$

Diff$1($DJUA$)$

Diff$1($DJIA$)$

Diff$1($DJTA$)$

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Does it appear that the three Dow indexes tend to move together through time?

$$ Only the $$ differences are fairly highly correlated.

b$.$ It is possible $($and has been claimed$)$ that one of the indexes is a "leading indicator" of another. For example, a change in the DJUA in September might predict a similar change in the DJIA in the following December. To check for such behavior, create "lags" of the difference variables. Do this for each of the three difference variables. You should end up with $12$ lag variables. Explain in words what these lag variables contain. For example, what is the Dec$-50$ lag$3$ of the DJIA difference?

What is the Dec$-50$ lag$3$ of the DJIA difference? If necessary, round your answer to two decimal digits.

c$.$ Create a table of correlations of the three differences and the $12$ lags. Use conditional formatting to color green all correlations greater than $0\mathrm{.}5($or any other cutoff you choose$).$

Does it appear that any index is indeed a leading indicator of any other?

$$

The only correlations larger than $0\mathrm{.}5$ are between the $$ DJIA difference and DJTA difference at the same time.

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Partially CorrectB