Pairs Trading Workshop conducted at IIT-Kanpur by ALPHABETA
Investing in Gold as an Asset Class
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…Read more
Combination of Momentum and Value Strategies
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…Read more
Do you always have to take higher risks to achieve higher returns?
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…Read more
Does Price to Earnings based entry and exit timing work for the Indian stock market?
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…Read more
Evaluating an Earnings Momentum Strategy on Indian Markets
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…Read more
All hail the new 'Bond' - The Bharat Bond ETF
All fixed income investment lovers have a new reason to rejoice. They are celebrating the introduction of the Bharat Bond ETF - the first corporate bond ETF which marks the emergence of a new class of investment in India. Bharat Bond ETF is a debt exchange traded fund (ETF) that will hold only bonds issued by public sector companies owned by the Government of India. It is an initiative by the Government of India to help public sector organisations with their borrowing requirements and at the same time give an opportunity to retail investors to access the bond market in an easy and liquid manner. Earlier, bond issuances were done…Read more
Benefits of back-testing to analyze stocks for investment
How many of you remember, back in the days when we looked into the newspapers to get quotes of stocks, then pore over rows and rows of data on the newsprint, debate with friends, family and colleagues and then try and reach a consensus on which script to invest in? One fine day came CNBC, where they started broadcasting real time stock prices on their channel and the faithful went mad with joy! Slowly and steadily, as we moved into the digital age, different brokerage houses evolved over the course of time and started providing different types of real time market information - stock alerts, news flashes, etc. and their…Read more
Open Banking and its future in India
"Customer is the King” - This age old saying has been well executed by the 21st century unicorn companies like Airbnb, Amazon, Alibaba, Uber, etc. They have excelled at providing personalised services, support, convenience and experience to all their customers and disrupted the customer centric industries in a big manner. Banking is no exception. Let us assume that you are planning on buying a home. Even before you apply for a home loan, your bank acts as a trusted advisor and introduces you to a series of partners like insurance companies, movers, designers, lawyers, etc. - all of this over and above just providing for a loan approval tool. Now isn’t…Read more
Pairs Trading in Information Technology Sector
India's technology sector has been in the news off late for many reasons- the slowdown in the Global Economy, technology advancements and its resultant impact amongst the industry players and their stakeholders. Traditionally, players in this sector have exploited the cost arbitrage (the cost of providing the services in India as compared to developed markets) and technical talent pool availability in India, as a growth strategy with minimal or no differentiation in the services provided by the players. This growth strategy has worked very well so far.
We undertook an interesting study on analysing whether Pairs Trading strategy, can be an effective strategy to be deployed in this sector. Our analysis…Read more
What Color Is Your Life Vest?
The growth of information technology in the 80s and 90s gave rise to the knowledge economy and knowledge workers. Companies made significant investments in systems and infrastructure to support their traditional business operations. This created the IT industry to build, operate and maintain these systems. The internet began the shift of those operations to online and resulted in rapid growth of eCommerce and business process outsourcing. We are now in the midst of the third technology wave led by automation where business operations are increasingly moving into the “hands” of machines, bots and other AI technologies. According to the Institute for New Economic Thinking, “Half of all jobs will be…Read more