JMP

JMP pro

Consider a portion of the following old lead past article from the Business Section of Milwaukee Journal:

New Tool Gauges State Firms Economic Margin Factors in Cash Flow, Investment

... Economic Margin is a calculation develop by Obrycki and his partner, Rafael Rafe Resendes [of The Applied Finance Group Ltd.], to measure a company?s profitability... Resendes and Obrycki think their analysis could help savvy investors develop a short list of potential stocks to research and possibly buy...It would be a great way to get a narrow list of candidates, Obrycki said.

The article provides the following information for 49 Wisconsin companies: 1995/1996 Ranking of the Company Based on Economic Margin Computation (1 being best, and so on...) 1996 Ranking of the Company Based on Actual Performance in Terms of Increase in Market Value (1 being best, and so on...)

The data are found in the file Margin. The suggestion is that economic margin rankings (X- variable) is significantly related to performance rankings (Y-variable). Lets investigate!

(a) Simply plot Y versus X and provide the output. Whats your visual impression?

(b) Next, lets create a regression fit for the variables. Click on the red triangle next to the title Bivariate Fit of Actual By Margin and select Fit Line. Provide the resulting regression line, and comment your thoughts on if this is fitting the data well.

(c) Previously, you should have seen a slight positive tilt to the fitted line. Is that what financial advisors trying to sell potential clients on? (This is a rhetorical question.) The real question is if the slope is significant! So, within this regression framework, we will test the null hypothesis of no relationship using both confidence intervals and p-values. That is, H0 : 1 = 0. First, lets get the 95% confidence interval. Right click on the table below the Param- eter Estimates tab, then within the Columns option, select both Lower 95% and Upper 95%. You should get two new columns added to your table. Using that table, test the null hypothesis above using both confidence intervals and p-values. You should write a comment for each on how/why we reject or fail to reject the null hypothesis. Based on your answer in the previous part, does there actually exists this relationship theyre trying to sell potential clients on?