Price model for H.J. Heinz Company

The model for H.J. Heinz Company (HNZ) is another example of the deterministic character of share price evolution. Our model is stable over the past year and is defined by the consumer price index of other food less beverages (FB) and the index of miscellaneous service (MISS). The former CPI component leads the share price by 4 months and the latter evolves in sync with the share price. Figure 1 depicts the overall evolution of both involved indices. These two defining components provide the best fit model between January 2010 and December 2010. The FB coefficient is negative and thus the increasing food price leads to a decline in the share price four months later. The MISS index has a positive coefficient and causes the share price to grow. The slope of time trend is negative revealing the price tendency to decline over time. The best-fit 2-C model for HNZ(t) is as follows:

HNZ(t) = -1.21*FB(t-4) + 1.19*MISS(t) - 2.34(t-2000) – 64.78

where t is calendar time.

The predicted and observed curves are presented in Figure 2. The residual error is of $1.70 for the period between June 2003 and December 2010. The model provides and an excellent and very stable prediction of the share price in the past. Currently, the predicted price is lower than the observed one. One can expect a slight correction of the price down.

Figure 1. Evolution of the price index of FB and MISS.

Figure 2. Observed and predicted HNZ share prices. Black diamonds present the contemporary prediction to fit actual data.

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