Quant Question

Anyone have any idea what type of statistical relationship that may exist between the standard deviation of return and the standard deviation of market capitalisation

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Comments (4)

Dec 3, 2007 - 6:13pm

Perhaps you're looking for a more scientific answer, but at face value there is a clear positive correlation between the two (volatile earnings = volatile valuation).

However, the magnitude of this correlation would be strongly influenced by the Company's capital structure, among other things. The higher the financial leverage, the more volatile a market cap would react to changes in earnings (since the debt portion of EV remains relatively more fixed than equity).

Dec 3, 2007 - 6:55pm

Looking at the standard deviation of weekly change in FTSE100 firm stock prices and the standard deviation of the market capitalisation

Dec 4, 2007 - 11:15am

So you're asking do companies with smaller market caps have more/less volatile stock prices?

I would say that's definitely a negative correlation if you think about stocks in general. Since penny stocks are for example known to jump around quite alot.
But since FTSE100 companies are the highest capitalized co.s on the LSE the correlation is likely to be weak.

A simple question unless I misunderstood.

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