Avery Dennison in 2011 Q2

We presented a tentative model for Avery Dennison Corporation (AVY) in January 2011 and predicted a period of no growth in Q1. This prediction was right. Hence, it is instructive to revisit the previous model and forecast the share behaviour in Q2.

According to [1], the share price model for AVY is still defined by the index of food (F) and that of new and used motor vehicle (NUMV). The former CPI component leads the share price by 4 months and the latter one leads by 2 months. Figure 1 depicts the overall evolution of both involved indices. These two defining components provide the best fit model between July 2010 and March 2011.  Relevant coefficients are both negative. The slope of time trend is positive.  The best-fit 2-C model for AVY(t) is as follows:

AVY(t) =  -4.24F(t-4) – 3.23NUMV(t-2)  + 23.29(t-1990) + 799.24

where AVY(t) is a share price in US dolalrs, t is calendar time.

The predicted curve in Figure 2 leads the observed price by 2 months with the residual error of $2.68 for the period between July 2003 and March 2011. The model residual for the same period is shown in Figure 3. The model does predict the share price in the past and foresees a fall in 2011 Q2.

Figure 1. Evolution of the price of F and NUMV.

Figure 2. Observed and predicted AVY share prices.

Figure 3. Residual error of the model. Mean residual error is 0 with standard deviation of $2.68. Currently, the price is slightly overestimated.

References

1. Kitov, I. (2010). Deterministic mechanics of pricing. Saarbrucken, Germany, LAP Lambert Academic Publishing.