Question

what does this graph mean? How can I interpret this?

NIKE vs. NASDAQ returns Nike vs. NASDAQ returns 2.00% 1.50% y = 0.298 +0.0009 R?=0.2156 0.50% -4.00% -3.00% -2.00% -1.00% 0.00% 1.000 2.00% 3.00% 4.00% -0.50% -1.00% 1.50% -2.00%

Answer 1

This is a regression graph of a NIKE stock returns (y-axis) v/s NASDAQ returns (x-axis) which is the market. The regression line id drawn using the best fit method and has an equation of y = 0.298x +0.0009. R2 = 0.2156

from the equation, one can infer that the y varies as 0.298 times x. i.e. NIKE stock return changes as NASDAQ return changes. .

Now whether this regression line is correct or acceptable is determined by R2. R2 is a statistical measure that explains what proportion of the values of dependent variable is explained by the independent variable.

In this case R2 is on the lower side, which means that NASDAQ returns doesnt fully explain the return of Stock NIKE. Visually too, we can see that NIKE returns are all over the place (positive and negative)  and do not have a consistent path. A value of R2 greater than 40-50% is considered to be good.