# How to calculate the weight of the stocks using the linear regression?

I do a simple example with the follow three series(stocks prices):

a = 1, 1.2, 1.8, 1.3, 0.9, 2
b = 56, 58, 63, 61.5, 57.6, 58
c = 105.6, 110, 106.9, 103, 101.2, 107


ok, so let assume those series are the prices of the three stocks, named A, B and C.

Now, I do the linear regression doing:

mod = lm(a ~ b + c + 0)


the result of the linear model is:

Call:
lm(formula = a ~ b + c + 0)

Coefficients:
b          c
0.030570  -0.004095

> mod\$residuals
1          2          3          4          5          6
-0.2795238 -0.1226474  0.3118110 -0.1583030 -0.4464512  0.6650691


Now we know the coefficients of b and c and here I have a doubt regarding, how can I understand reading these coefficients the weight of the stocks I need to buy.

With the weight I mean, example:

A: 10 stocks
B: 2 stocks
C: 16 stocks


I would like to create this spread and calculate the correct number of stocks.

IMPORTANT: This is only an example, I know that I need more tests to check the stability etc etc but with this example I only would like to understand:

How can I calculate the number of the stocks reading the linear regression coefficients?

Thank you!

• Seven of your 11 questions on here have been closed. Given the sheer volume of warnings you've received, you should know by now what's considered appropriate level of material. – chrisaycock May 25 '12 at 14:15