Market Cap Deciles

Introduction

Segmenting the market to track performance, risk etc. has been around for a long time. The Dow Jones Industrial Average was launched in 1896, the Sensex since 1986 and the Nifty since 1995. They provide a short-hand to gauge market performance and track returns over a period of time.

Index construction

An index can be constructed based on any combination of factors that are common to its constituents. They can be sectoral like FMCG, IT, etc. or they can be based on fundamental factors like book value, sales, etc. However, the most common way to construct an index remains free float market capitalization. This is the approach that most indices, like the Nifty, take.

The Nifty lists the following criteria for its constituents (NSE):

  1. Liquidity (Impact Cost)
  2. Float-Adjusted Market Capitalization
  3. Float
  4. Domicile
  5. Eligible Securities
  6. Other Variables

Deciles vs. Indices

Using existing indices come with some disadvantages:

  1. Rebalancing usually occurs once every 6 months – a lot can happen in that time.
  2. They usually have “other” considerations – not entirely quantitative.
  3. Do not cover the entire market – the biggest index in the NSE is CNX 500 that track 500 stocks.

An alternative is to build your own set of indices based on purely quantitative considerations. For example, you could divide the market into deciles based on their free float market cap and set a minimum daily turnover. This will then allow you to track micro-cap through mega-cap performance over arbitrary time frames, track how different stocks transition through deciles, set up “early warning” signals, etc.

Example

If you divide the market into deciles and set the minimum daily turnover to be 0.01% of float, then you end up with about 140 stocks in each. The 1st decile would be the micro-caps while the 10th would be the mega-caps. Here’s how the different deciles performed this week:

decile

Watch out for decile performance charts in our weekly and monthly performance roundups!

Opening Bell 11.07.2014

Your world at 9am

world equity markets 2014-07-11

Equities

Major
DAX(DEU) -1.52%
CAC(FRA) -1.34%
UKX(GBR) -0.68%
NKY(JPN) -0.26%
SPX(USA) -0.41%
MINTs
JCI(IDN) -0.96%
INMEX(MEX) -0.50%
NGSEINDX(NGA) -0.08%
XU030(TUR) -1.30%
BRICS
IBOV(BRA) +1.79%
SHCOMP(CHN) +0.36%
NIFTY(IND) -0.23%
INDEXCF(RUS) -1.22%
TOP40(ZAF) -0.87%

Commodities

Energy
Brent Crude Oil -0.09%
Ethanol +0.00%
Heating Oil +0.01%
Natural Gas +0.17%
RBOB Gasoline -0.02%
WTI Crude Oil -0.13%
Metals
Copper +0.03%
Gold 100oz +0.01%
Palladium -0.19%
Platinum -0.09%
Silver 5000oz +0.00%

Currencies

USDEUR:+0.04% USDJPY:-0.02%

MINTs
USDIDR(IDN) +0.42%
USDMXN(MEX) -0.01%
USDNGN(NGA) +0.12%
USDTRY(TUR) -0.04%
BRICS
USDBRL(BRA) +0.35%
USDCNY(CHN) +0.09%
USDINR(IND) +0.75%
USDRUB(RUS) -0.00%
USDZAR(ZAF) +0.01%
Agricultural
Cattle -0.13%
Cocoa +1.09%
Coffee (Arabica) -5.49%
Coffee (Robusta) -1.80%
Corn +0.06%
Cotton +0.01%
Feeder Cattle -0.95%
Lean Hogs -0.30%
Lumber +0.09%
Orange Juice -3.90%
Soybean Meal +0.16%
Soybeans +0.24%
Sugar #11 -0.86%
Wheat -0.09%
White Sugar -1.29%

Must reads

Budget Roundup:

  • This budget could be the springboard to a massive investment surge with the accompanying benefits of job creation and wealth dispersion (LiveMint)
  • D-Street gives 7 on 10 to Budget. (ET)
  • Sinners taxed. (WSJ)
  • A big let down for tax payers (FP)
  • Sops galore for realty sector. (ET)

Espirito Santo International, a Portuguese bank, is in trouble. (WSJ)

But large money managers don’t expect the worries over one of Portugal’s largest lenders to have a lasting impact on global financial markets. (WSJ)

Good luck and have a nice weekend!

Options Daily 11.07.2014

Nifty OI

nifty.puts.calls.JUL.2014-07-09.2014-07-10

Anomalous Option Trades

A sudden increase or decrease in open interest can signify informed buying/selling that you can potentially profit from. Option traders tend to ‘lead the pack’ and their actions can be used to gain insight into the consensus opinion of traders. This scan lists option trades that were one standard deviation away from the average over the last 20-days. Note that this scan maybe too noisy around expiry.

You can download the csv here.

Check out our Option Strategy Studio. One more reason to open a demat account with us.

Options Daily 10.07.2014

Nifty OI

nifty.puts.calls.JUL.2014-07-08.2014-07-09

Anomalous Option Trades

A sudden increase or decrease in open interest can signify informed buying/selling that you can potentially profit from. Option traders tend to ‘lead the pack’ and their actions can be used to gain insight into the consensus opinion of traders. This scan lists option trades that were one standard deviation away from the average over the last 20-days. Note that this scan maybe too noisy around expiry.

You can download the csv here.

Check out our Option Strategy Studio. One more reason to open a demat account with us.

Opening Bell 10.07.2014

Your world at 9am

world equity markets 2014-07-10

Equities

Major
DAX(DEU) +0.36%
CAC(FRA) +0.40%
UKX(GBR) -0.30%
NKY(JPN) -0.24%
SPX(USA) +0.46%
MINTs
JCI(IDN) +1.94%
INMEX(MEX) +0.07%
NGSEINDX(NGA) +0.41%
XU030(TUR) +0.19%
BRICS
IBOV(BRA) -0.31%
SHCOMP(CHN) +0.08%
NIFTY(IND) -0.50%
INDEXCF(RUS) -0.22%
TOP40(ZAF) -0.49%

Commodities

Energy
Brent Crude Oil -0.16%
Ethanol +0.00%
Heating Oil -0.05%
Natural Gas -0.07%
RBOB Gasoline -0.19%
WTI Crude Oil -0.45%
Metals
Copper -0.06%
Gold 100oz +0.51%
Palladium +0.23%
Platinum +0.47%
Silver 5000oz +0.42%

Currencies

USDEUR:-0.04% USDJPY:-0.10%

MINTs
USDIDR(IDN) +0.00%
USDMXN(MEX) +0.01%
USDNGN(NGA) +0.10%
USDTRY(TUR) +0.13%
BRICS
USDBRL(BRA) -0.03%
USDCNY(CHN) -0.04%
USDINR(IND) -0.10%
USDRUB(RUS) -0.81%
USDZAR(ZAF) +0.19%
Agricultural
Cattle +0.30%
Cocoa -1.28%
Coffee (Arabica) +0.00%
Coffee (Robusta) -0.63%
Corn -0.74%
Cotton -0.86%
Feeder Cattle +0.33%
Lean Hogs -0.04%
Lumber +0.00%
Orange Juice +0.00%
Soybean Meal +0.11%
Soybeans -0.64%
Sugar #11 -1.19%
Wheat +0.00%
White Sugar -1.35%

Must reads

Not a single European economy, outside of parts of the former Soviet Union and former Yugoslavia and Albania, is managing to generate 2% inflation. The ECB imposed negative rates on its banking sector in June. What next? (WSJ)

It doesn’t matter if you are the best trader ever. The tax man will cut you down. (TheIrrelevantInvestor)

As early as 2018, solar could be economically viable to power big cities. By 2040 over half of all electricity may be generated in the same place it’s used. Centralised, coal-fired power is over. Solar has won. Even if coal were free to burn, power stations couldn’t compete. (TheGuardian)

Good luck!