Market-Cap Deciles, Part II

We had introduced the concept of dividing the universe of stocks by market-cap deciles a while ago (StockViz.) Here are some observations.

Returns

The last year has been spectacular for small- and mid-cap stocks.

From August-2014 to Now:
decile all

For 2015:
decile 2015

So far in 2016:
decile 2016-JAN
Note: Deciles go from 1 (micro-cap) to 10 (mega-cap)

In 2015:

  1. If you had blindly invested in an equal-weight portfolio of ~145 micro-cap stocks, you would have been up ~70%
  2. Every other decile out-performed the mega-caps (decile #1)
  3. Note how the standard-deviation of returns compress as you walk up the cap

Migrations

migrations 2015
Free-float market-cap is a volatile measure in itself – when you use that to classify stocks, you end up with quite a bit of movement between deciles. Something to keep in mind while using deciles for analysis.

Market breadth indicator

The mega-cap decile (decile #1) can be used as a crude market-timing indicator. If you track the number of stocks in the decile that went up vs. the number that went down, you end up with a proxy for breadth.

long-short-nifty

Even though technically it beat the buy-and-hold NIFTY 50, the indicator produces too many trades and it doesn’t offer a large enough margin of out-performance to be useful in live trading.

Next steps

We will continue to poke around and share what we find!