Finance

The Behavior of Individual Shares Compared to the Basket of Shares

When we examine in retrospect (for example, one year later) the achievements of each of the shares included in a basket, i.e. the return produced as measured by the value of the shares of those who invested, the shares can be divided into four groups:

Group 1

These shares usually rose by more than the rise in the price of the basket when the latter rose, and fell by more than the decrease in the price of the basket when the latter fell.

For example, on Monday, when the price of the basket rose by 1%, the price of a share in this group rose by 2% (or by any other rate greater than 1%).

On Tuesday, when the price of the basket fell by 1%, the price of the shares fell by 2% (or by any other rate greater than 1.2%).

Illustration 5.1 describes this pattern of behavior. The shares of insurance companies usually follow this pattern.

The Behavior of Individual Shares-1


Group 2

These shares usually rose by less than the rise in the price of the basket when the latter rose.

For example, on Monday, when the price of the basket rose by 3%, the price of a share in this group rose by 2% (or by any other rate below 3%).

On Tuesday, when the price of the basket fell by 3%, the price of the share fell by 2% (or by any other rate below 3%).The illustration describes this pattern of behavior that pharmaceutical companies usually follow. Illustration 5.2 describes this pattern of behavior. The shares of pharmacuetical (drug) companies usually follow this pattern.

The Behavior of Individual Shares-2


Group 3

These shares behaved in the opposite manner compared to the price of the basket. When the price of the basket rose, the shares fell, and when the price of the basket fell, the shares rose. The illustration describes this pattern of behavior that oil companies usually follow.

The Behavior of Individual Shares-1


Group 4

The behavior of these shares has no connection with the behavior of the price of the basket.

For example, when the prices of the basket fall, they sometimes rise more than the basket, sometimes rise less than the basket, and sometimes they continue to fall , etc.

The Behavior of Individual Shares Compared to the Basket of Shares558The Behavior of Individual Shares Compared to the Basket of Shares