We have been following the share of Avery Dennison Corporation since 2009. The model for AVY has not been changing much and is still defined by the index of food (F) and that of new and used motor vehicles (NUMV). The former CPI component leads the share price by 5 months and the latter one - by 3 months. Figure 1 depicts the overall evolution of both involved indices. These two defining components provide the best fit model between August 2009 and December 2010. Relevant coefficients are both negative. Therefore the growth in both indices causes the share price to fall with a several month delay. The slope of time trend is also positive.
So, the best-fit 2-C model for AVY(t) is as follows:
AVY(t) = -4.10*F(t-5) – 2.95*NUMV(t-3) + 22.62(t-2000) + 754.97
where t is calendar time. The predicted curve in Figure 2 leads the observed price by 3 months with the residual error of $2.66 for the period between June 2003 and December 2010. The model does predict the share price in the past and foresees a period of no growth in the first quarter of 2011.
Figure 1. Evolution of the price of F and NUMV.
Figure 2. Observed and prdicted AVY share prices. Black diamonds present the contemporary prediction shifted 3 months ahead to fit actual data.
Figure 3. Residual error of the model.