Today we investigate whether stock returns are normally distributed! First, I show the difference between simple returns and log returns, highlighting the main reason log returns are preferred for financial analysis.
Then we explore whether CBA (ASX listed stock, Commonwealth Bank of Australia) log returns are normally distributed. We do this by considering several visual and statistical techniques; Quantile-Quantile Plots, Box Plots, Histograms, and numerically by Hypothesis Testing with Kolmogorov Smirnov and Shapiro Wilk tests.
Full code available on my website: https://asxportfolio.com/shares-python-for-finance-normally-distributed
00:00 Intro
00:27 Why use log returns?
02:18 Simple returns
07:28 Log returns
10:44 Are log returns normally distributed?
16:08 Quantile-Quantile Plots
18:00 Box Plots
19:20 Kolmogorov Smirnov test
22:10 Shapiro Wilk tests
As a high-level programming language, Python is a great tool for financial data analysis, with quick implementation and well documented API data sources, statistical modules and other frameworks related to the financial industry. We will be using Jupyter Lab as an interactive web browser editor for this series due to ease of use and presenting code in a live notebook is ideal for this tutorial series.
This is the third video of many on the topic of Python for Finance. The series will include general techniques used for financial analysis and act as an introduction for more in-depth tutorials that we may explore later (such as time series modelling, building financial dashboards, machine learning ect.).
★ ★ ASX Portfolio Patreon Community ★ ★
Get access to Jupyter Notebooks and join a small niche community of like-minded quants on discord.
https://www.patreon.com/asxportfolio
★ ★ 📚 BOOK RECOMMENDATIONS 📚 ★ ★
📚 Stochastic Calculus for Finance I: The Binomial Asset Pricing Model
📚 Stochastic Calculus for Finance II: Continuous-Time Models
📚 Implementing Derivative Models
📚 Statistical Analysis of Financial Data in R
★ ★ FREE RESOURCES ★ ★
EDUCATION: https://asxportfolio.com
Option Pricing Calculator: https://asxportfolio.com/bsmodel
ASX Options List: https://www.asxoptions.com/company-directory/
★ ★ CONTACT US ★ ★
EMAIL: asxportfolio@gmail.com
Disclaimer:
All ideas, opinions, recommendations and/or forecasts, expressed or implied in this content, are for informational and educational purposes only and should not be construed as financial product advice or an inducement or instruction to invest, trade, and/or speculate in the markets. Any action or refraining from action; investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied in this content, are committed at your own risk an consequence, financial or otherwise.
python for financefinancepython
