Testing for mean/variances: Application for decision making.

Objective:
To test whether the daily closing prices of Amazon.com 2019 is lower than the daily closing
price of S&P indices 2019.
Research Hypothesis:
Probably, the mean closing price of Amazon 2019 is lower than the closing price of S&P
indices 2019.
µ1< µ2
Sample information:
Amazon:
Number of years= 5
Sample size= 252
Mean closing price= 1790.61
Standard deviation= 100.302
S&P indices:
Number of years= 5
Mean closing price = 1290.76
Standard deviation= 70.0306
Statistical Hypothesis:
Null hypothesis;
H0 : µ1 ≥ µ2
Probably, the mean closing price of Amazon is higher than the closing price of S&P indices
Alternative hypothesis;
H1 : µ1 < µ2
Probably, the mean closing price of Amazon is lower than the closing price of S&P indices
Errors in hypothesis testing:
Type – I error: (reject H0 / not reject H0)
P(µ1 < µ2 / µ1 ≥ µ2 ) = 0.05

Type – II error: (not reject H0 / reject H0)

P(µ1 ≥ µ2 / µ1 < µ2) = β
Assumptions:
Both the populations that is, Amazon and S&P indices are normally distributed.
Both the population variances are equal.
For the given problem we test the assumption of equality of variance using F-test.
Test for equality of variance:
Null hypothesis:  σ12 = σ22
Alternative hypothesis: σ12 ≠ σ22
=0.05
Under H0,
F0 = S12 / S22 ~ Fn1-1, n2-1, d.f
=2.051363
P= 1.000
P > alpha
Conclusion:
Since P > alpha we will not reject H0
Hence the assumption of equality of variance is satisfied.
Since the assumption is satisfied, we will use t- test.

Construction of t-test statistics:

Under H0,
x́ 1− x́ 2
t0= 1 1 = 64.8642
√
S
+
n1 n 2

2 ( n1−1 ) s21 + ( n 2−1 ) s 22

S = = 7482.38
n 1+ n2−2

Decision:
H0 : µ1 ≥µ2
right tailed test
p= 1.000
since p > alpha we do not reject H 0. We can conclude that µ1 ≥ µ2 i.e., Amazon stock prices is
more than the S&P stock prices for the year 2019.

Testing for mean/variances: Application for decision making.

Objective:
To test whether closing price of ONGC is lower than the closing price of GAIL.
Research Hypothesis:
Probably, to test whether closing price of ONGC is lower than the closing price of GAIL.
µo < µg
Sample information:
Oil and Natural Gas Corporation:
Number of years= 5
Closing price = 136.922
Standard deviation = 31.2239
Gas Authority of India Limited:
Number of years= 5
Closing price = 169.061
Standard deviation = 17.9304
Statistical Hypothesis:
Null hypothesis;
H0 : µs ≤ µp
Probably, the test whether closing price of ONGC is higher than or equal to the closing price
of GAIL.
Alternative hypothesis;
H1 : µs > µp
Probably, to test whether closing price of ONGC is lower than the closing price of GAIL.
Errors in hypothesis testing:
Type – I error: (reject H0 / not reject H0)
P(µs > µp / µs ≤ µp ) = 0.05

Type – II error: (not reject H0 / reject H0)

P(µs ≤ µp / µs > µp) = β
Assumptions:
For the given problem we test the assumption of equality of variance using F-test.
Test for equality of variance:
Null hypothesis:  σs2 = σp2
Alternative hypothesis: σs2 ≠ σp2
=0.05
Under H0,
F0 = S12 / S22 ~ Fn1-1, n2-1, d.f
=3.0324
Pr= 0.552418
PL= 0.447582
P= 0.895164
P>∝
Conclusion:
Since P > 0.05we will not reject H0
Hence the assumption of equality of variance is satisfied.
Since the assumption is not satisfied, we will use t-test.
Construction of t-test statistics:
Under H0,
x́ 1− x́ 2
t0= 1 1 = -1.9959
√
S
+
n1 n 2

2 ( n1−1 ) s21 + ( n 2−1 ) s 22

S = = 648.216
n 1+ n2−2

S = 25.46
Decision:
H0 : µ1 ≥µ2
right tailed test
t= 0.0405
since t0 < twe reject H0. We can conclude that µ1 < µ2.
ANOVA- Analysis of variance

Research Hypothesis:
To check whether there exists a significance difference in the change in Closing price
over the years for different Oil and Gas companies.
Sample Information:
Sample information about closing price of different Oil and Gas companies has been
considered from the year 2015-2019
Statistical Hypothesis:

 Null Hypothesis:
H0: µ1 = µ2 = µ3 = µ4

 Alternative Hypothesis:
H1: µi ≠ µj, i ≠ j, i, j=1,2,3
Errors in Hypothesis:

 TYPE 1 ERROR:

P (reject H0 / not reject H0) = α

P (µi ≠ µj / µ1 = µ2 = µ3 = µ4) = 0.05
1- α = 0.95 = Level of Significance

 TYPE 2 ERROR:
P (not reject H0 / reject H0) = β
P (µ1 = µ2 = µ3 = µ4 / µi ≠ µj) = β
1- β = Power of Test
Assumptions:
1. There exists equality of variance.
2. All the sample under study are random sample.
3. Population is independent and normal.
Construction of test statistic:
Under H0,
F0 = (Between variance / within variance)
We have taken random sample of change in closing price of 4 companies in the Oil and Gas
sector from the year 2015 – 2019


ANOVA Table 5%
p-
Source SS df MS F Fcritical value
Betwee 18098 17.5 3.238 0.000 Rejec
n 3 3 60328 1 9 0 t
3444.
Within 55112 16 5
23609
Total 6 19

Tukey test for pairwise comparison of group means

      BP      
r 4 HP Sig HP  
n-r 16 GAIL Sig Sig GAIL  
q0 3.85 ONGC Sig Sig    
T 101.05        
             

As we can see in the above table there exists significant difference between all the Oil and
Gas companies except for ONGC and GAIL.
Thus, we can conclude that there is a significant difference between the changes in closing
price of Oil and Gas companies from the year 2015 – 2019.