April 7th, 2020

A wake-up call for a disciplined investment approach – Will COVID 19 event, bring a positive change in investors behavior?

By Sathyanarayanan Palaniappan

The need for a disciplined investment approach, with ideal asset allocation and rebalancing strategy is unfortunately realized only when the market goes through a distress time like the current scenario of COVID 19 crisis. While one might argue that, the Global COVID 19 crisis is a Black Swan event, which can’t be predicted, history repeats for itself and the market goes through these cycles and events at least at once in a decade. In 2008, the liquidity crisis and now in 2020, with the COVID-19 crisis, Investors with huge allocation to equity and retiring in 2020 and 2021, are caught off handed with the fall in the market value of…

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March 30th, 2020

Accruals as an Investment Strategy

By Diksha Jain

Informed decision and data helps in keeping check on one's emotions while investing. One of the insights that you get from constant back testing on different data sets is the importance of accruals in screening the stocks for investment. Generally, investors value the businesses primarily on their earnings power. Richard Sloan in 1996 documented “Accrual Anomaly” where he found that stocks of companies having low or negative accruals outperform the companies having high accrual.

Using ALPHABETA simulate module, I back-tested the NSE-100 stock universe (India Market) from June 2014 till date and found that the low accrual stock group consistently performs better than the high accrual stock group. The groupings were…

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March 15th, 2020

Pairs Trading - Performance Tracker

By Umang Koul

Following screenshots show the updated performance(12 March) of Pairs Trading portfolios in Indian and US markets. These portfolios were created by ALPHABETA on 31 December. You can find our last week’s pairs trading blog on US markets here and Indian markets here.

Pic: Pairs Trading Portfolio Performance (US markets - DOW) as on 12 March

Pic: Pairs Trading Portfolio Performance (India - NIFTY50) as on 12 March

As you can see from the screenshots, even after the markets being highly volatile, both the portfolios are on the positive side in terms of cumulative returns. Sharpe ratio…

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March 10th, 2020

Pairs Trading Within the Dow

By Umang Koul

We posted Pairs Trading results for Indian Markets yesterday here. Today we are following up with the Dow results. Pairs Trading strategy has been used over the years by Institutional fund managers as well as hedge funds to generate positive returns during times of uncertainty in the markets. Also during periods of flat markets, pairs trading historically has performed well.

The results of the live virtual Pairs Trading portfolio which we created on 31 December is shown below. We allocated USD 200,000 to the portfolio. The results are updated as of 9th March.

Pic: Pairs Portfolio Performance (from 31 Dec to  9 Mar)

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March 9th, 2020

Performance of Pairs Trading in Bear Market

By Umang Koul

Global Markets have been on a roller coaster ride in the past few weeks. Volatility in the global markets spiked because of fear of Coronavirus outbreak across the globe. Indian markets also succumbed to the Coronavirus fears when few positive cases were detected a couple of weeks ago. As a result bears took control of  NIFTY50 as it dropped by 7.3% in one week (23-28 Feb). This is the largest weekly drop since the financial crisis of 2008-09. In India, close to 12 lakh crores of Investor wealth was lost in just 5 trading sessions. Even today (9th March) as we are writing this, NIFTY50 has fallen almost 5% since…

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February 17th, 2020

Investing in Gold as an Asset Class

By Diksha Jain

Gold has always been special for people throughout history. It is revered as a luxury good, held with cultural significance across communities, considered a safe wealth preserver for inter-generational transfer and now increasingly, is being viewed as a form of strategic investment to diversify one’s portfolio.

Historical relationship between Gold and Currencies

Gold is a precious and scarce metal that has been used over time as a determining factor for currencies and as a guarantee to a secure currency. Till 1971, major currencies of the world, including the US Dollar, were pegged to value of Gold under the Gold Standard System. In 1971, US terminated convertibility of the dollar to gold, bringing…

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January 27th, 2020

Combination of Momentum and Value Strategies

By Pawan Kerkar

Of all the different topics about investments, debating between fundamental strategies and price action strategies always proves interesting. Deciding which approach to pursue depends on several factors: the appetite for risk, whether it is a long-term or a short-term investment, and the past experiences the investor has faced with each respective approach. This article will aim to evaluate strategies that mix both approaches. First, we sort a universe of stocks separately based on momentum strategy and value-based criteria. Then we select stocks that are common to both and create a portfolio with the same. The portfolio is held for a short period of one quarter, and rebalanced at the end…

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January 14th, 2020

Do you always have to take higher risks to achieve higher returns?

By Pawan Kerkar

It is a common conception that higher risk is rewarded with superior returns. But is this always valid? Historical data show that low-volatility (or low-risk) stocks have always outperformed the high-volatility stocks, which goes against the fundamental principle that risk is compensated by higher returns. This anomaly is called the Low-Volatility Anomaly (LVA). Several studies, especially those conducted on foreign markets observe the anomaly to be valid. In our study, we employ an LVA strategy on a universe of 100 stocks contained in Nifty 100 and try to find out whether it works in Indian markets.

We employ the LVA strategy by first computing the volatility over a six-month period for…

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January 8th, 2020

Does Price to Earnings based entry and exit timing work for the Indian stock market?

By Dheeraj Agarwal

Is it possible to successfully time our entry and exit in the Indian stock market? Based on data analysis over the last twenty years, we have sought to determine whether the market will go up for the next few days or vice versa, based on a few simple parameters? There have been a lot of financial engineers who tried to solve this problem using complex mathematics and computing. In the end, it is a simple strategy, to buy the market when we predict it will go up and sell when it will possibly go down. We have tried using a simple Price to Earnings strategy to see if this can…

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December 30th, 2019

Evaluating an Earnings Momentum Strategy on Indian Markets

By Pawan Kerkar

What determines the changes in stock prices, and what tools can investors use to understand the market better? It is argued that we can apply certain principles of physics to the market as well! We are all aware of the principle of motion which says that the momentum of an object will not change unless acted upon by an external force. A similar observation can be made in the markets where the stock prices are also observed to have a kind of “momentum”.  For the investor, this means that if the market has driven up the value of a certain stock, the value is likely to continue to rise for…

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