Here is the graph of monthly returns of Lennox International (LII) plotted against Vanguard S&P 500 Index ETF (VOO):
Exhibit 1: Monthly Returns of Lennox International and Vanguard S&P 500 Index ETF [June 2019 - August 2022
(Source: RStudio, ggplot, Data Provided by IEX Cloud)
Results of the linear regression of monthly returns of Lennox International against Vanguard S&P 500 Index ETF:
VOOandLII <- read_excel("/LII_VOO_LM_September_2022.xlsx", sheet = "Sheet1")
lmLIIVOO = lm(LII_Monthly_Return~VOO_Monthly_Return, data = VOOandLII)
> summary(lmLIIVOO)
Call:
lm(formula = LII_Monthly_Return ~ VOO_Monthly_Return, data = VOOandLII)
Residuals:
Min 1Q Median 3Q Max
-0.090246 -0.052733 -0.001907 0.040310 0.108446
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) -0.010082 0.009416 -1.071 0.291
VOO_Monthly_Return 0.995050 0.170040 5.852 9.97e-07 ***
---
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.05767 on 37 degrees of freedom
Multiple R-squared: 0.4807, Adjusted R-squared: 0.4666
F-statistic: 34.24 on 1 and 37 DF, p-value: 9.966e-07
The slope of the regression corresponds to the beta of the stock. In this case, Lennox International has a beta of 0.995. Lennox's beta is close to the S&P 500 beta, so Lennox will move in line with the market.
The adjusted R-squared is 0.46. About 46% of Lennox's return is explained by the returns of the S&P 500 index.
