Objectives of Market Regulation
The objectives of market regulation are to control fraud, control agency problems, promote... Read More
The most widely used industry classification method is the grouping of companies offering similar products and/or services. A company’s classification is usually based on its principal business activity or the source from which the company derives a majority of its revenues or earnings. Sectors are used to describe a group of related industries.
Companies are sometimes grouped as cyclical or non-cyclical (defensive), depending on the company’s relative sensitivity to the business cycle. A cyclical company is one whose profits are strongly correlated with the strength of the overall economy and generally experiences above-average profit variability. Examples would include automotive, construction, heavy equipment, and airline industries.
A non-cyclical company is one whose performance is largely independent of the business cycle, such as a public utility company.
Statistical approaches group companies based on the correlations of past securities’ returns, often forming non-intuitive groups of companies through cluster analysis.