Author: shyam

The Pair Trading Tip-Sheet

shyam June 11, 2014September 9, 2014

During our back-testing for pair trading strategies, we found that we were most comfortable in going long the spread (when the spread is below its historical average) and betting on pairs within the same index. We have bundled all the assumptions into an easy to use pair trading “tip-sheet” that can be found here.

The pairs are computed at the end-of-day and live pair status is computed roughly once an hour. The p-value, beta and spread display both end-of-day data and live status side-by-side so that you can decide for yourself if going long the pair makes sense or not.

It is still rough around the edges – you cannot really add a pair to your portfolio and track like you can do with option strategies. But once it is fleshed out, it will be available exclusively to your trading/demat customers.

Pair trading equity futures is not for the faint of heart. The capital at risk is bigger than what most individual investors can stomach. But when done right, the returns are commensurate with the risks.

Categories Investing Insight, Your Money Tags pair trading

Weekly Recap: Confirmation Bias

shyam June 7, 2014

Equities

The Nifty ended the week +4.89% (+4.60% in USD terms.)

Major
DAX(DEU)	+0.44%
CAC(FRA)	+1.36%
UKX(GBR)	+0.20%
NKY(JPN)	+3.04%
SPX(USA)	+1.49%

MINTs
JCI(IDN)	+0.88%
INMEX(MEX)	+2.62%
NGSEINDX(NGA)	+0.13%
XU030(TUR)	+1.61%

BRICS
IBOV(BRA)	+3.24%
SHCOMP(CHN)	-0.45%
NIFTY(IND)	+4.89%
INDEXCF(RUS)	+3.69%
TOP40(ZAF)	+0.64%

Commodities

Energy
Brent Crude Oil	-0.69%
Ethanol	-8.35%
Heating Oil	-0.22%
Natural Gas	+3.56%
RBOB Gasoline	-1.71%
WTI Crude Oil	+0.19%

Metals
Copper	-2.55%
Gold 100oz	+0.61%
Palladium	+1.12%
Platinum	+0.08%
Silver 5000oz	+1.60%

Currencies

USDEUR:-0.04% USDJPY:+0.73%

MINTs
USDIDR(IDN)	+1.38%
USDMXN(MEX)	+0.58%
USDNGN(NGA)	+1.02%
USDTRY(TUR)	-0.89%

BRICS
USDBRL(BRA)	+0.16%
USDCNY(CHN)	+0.06%
USDINR(IND)	+0.14%
USDRUB(RUS)	-1.38%
USDZAR(ZAF)	+0.12%

Agricultural
Cattle	+2.21%
Cocoa	+0.15%
Coffee (Arabica)	-3.32%
Coffee (Robusta)	+1.98%
Corn	-1.71%
Cotton	-1.01%
Feeder Cattle	+1.85%
Lean Hogs	+1.59%
Lumber	-2.47%
Orange Juice	+2.25%
Soybean Meal	-2.38%
Soybeans	-2.43%
Sugar #11	-2.25%
Wheat	-1.51%
White Sugar	-2.15%

Nifty Heatmap

Index Returns

Top Winners and Losers

ONGC	+23.14%
RELCAPITAL	+23.77%
SAIL	+24.00%
HCLTECH	-6.40%
DRREDDY	-4.33%
BOSCHLTD	-3.54%

SAILed away…

ETFs

JUNIORBEES	+6.30%
PSUBNKBEES	+5.43%
NIFTYBEES	+5.24%
BANKBEES	+4.98%
INFRABEES	+3.03%
GOLDBEES	-0.75%

Another week of negative performance for Gold. Midcap stocks rallied…

Investment Theme Performance

Magic Formula Investing	+10.17%
Market Fliers	+9.86%
Financial Strength Value	+8.03%
Quality to Price	+7.07%
Balance-sheet Strength	+6.18%
Consistent10*	+5.69%
Enterprise Yield	+5.01%
Long Term Equity*	+4.34%
IT 3rd Benchers	+3.11%
Momentum 200	+3.06%
Market Elephants	+1.71%
Growth with Moat	+1.00%
Efficient Growth	-0.20%

High Beta and Quality-to-Price have consistently made the charts…

Sector Performance

Yield Curve

Bonds got bid up, yields compressed across the curve…

Thought for the weekend

There are some people in the financial industry that look at both sides of an argument and make their decisions using realistic probabilities. The problem is you won’t hear many of this level-headed reasoning because it will get drowned out by the overconfident prognosticators that make their forecasts with complete certainty.

Source: Perma-Arguments

Categories Your Money Tags weekly

Public Sector vs. MNCs

shyam May 31, 2014September 9, 2014

On the NSE, you can find two indices: CNX PSE and CNX MNC. They have been around since Jan-1995 – providing a quantifiable glimpse into how badly Nehruvian socialism has fared in modern India.

Cumulative Returns

CNX PSE: +247.69%
CNX MNC: +619.05%

Value traps

There has been a lot of talk recently about reforming PSEs. The SEBI wants the 25% public shareholding rule to apply to all public sector companies as well. The earlier (UPA-2) government, finding no takers for PSE stock, got Goldman to form an ETF to put some lipstick on the sector. The Rajiv Gandhi Equity Savings Scheme gave out tax sops to get retail investors into “Maharatna, Navratna, or Miniratna” stocks.

As much as I would like to believe that things are going to be different this time, you can’t dismiss the fact that PSEs have only lost money for investors. Once the crutches come off, these firms will anyway have to go through gut-wrenching transformations to compete in the real world. That would be a better trigger to enter these stocks (if and when they happen) rather than now when all we have are promises.

Categories Investing Insight, Your Money Tags returns

Monthly Recap: Rationality vs. Institutional Imperative

shyam May 31, 2014May 31, 2014

Equities

The Nifty pitched in with a +7.97% bump (+10.35% in USD terms)

Major
DAX(DEU)	+3.54%
CAC(FRA)	+0.72%
UKX(GBR)	+0.95%
NKY(JPN)	+2.29%
SPX(USA)	+2.40%

MINTs
JCI(IDN)	+1.11%
INMEX(MEX)	+2.27%
NGSEINDX(NGA)	+7.77%
XU030(TUR)	+7.85%

BRICS
IBOV(BRA)	-0.25%
SHCOMP(CHN)	+0.63%
NIFTY(IND)	+7.97%
INDEXCF(RUS)	+9.65%
TOP40(ZAF)	+1.91%

Commodities

Energy
Brent Crude Oil	+1.35%
Ethanol	+4.87%
Heating Oil	-1.51%
Natural Gas	-5.54%
RBOB Gasoline	-1.18%
WTI Crude Oil	+3.40%

Metals
Copper	+3.96%
Gold 100oz	-3.39%
Palladium	+3.27%
Platinum	+1.79%
Silver 5000oz	-2.08%

Currencies

USDEUR:+1.73% USDJPY:-0.42%

MINTs
USDIDR(IDN)	+0.99%
USDMXN(MEX)	-1.73%
USDNGN(NGA)	-1.36%
USDTRY(TUR)	-0.88%

BRICS
USDBRL(BRA)	+0.13%
USDCNY(CHN)	-0.20%
USDINR(IND)	-2.04%
USDRUB(RUS)	-2.15%
USDZAR(ZAF)	+0.52%

Agricultural
Cattle	-5.59%
Cocoa	+6.21%
Coffee (Arabica)	-13.98%
Coffee (Robusta)	-10.70%
Corn	-9.49%
Cotton	-9.02%
Feeder Cattle	+8.98%
Lean Hogs	-3.53%
Lumber	-7.36%
Orange Juice	+2.80%
Soybean Meal	-0.75%
Soybeans	-2.53%
Sugar #11	+0.58%
Wheat	-11.99%
White Sugar	-1.45%

Nifty Heatmap

Index Performance

Top Winners and Losers

DLF	+49.91%
SSLT	+51.31%
PFC	+58.80%
DRREDDY	-9.07%
GLENMARK	-8.61%
DIVISLAB	-7.68%

Pharma got whacked badly… it was a real estate and industrial show…

ETFs

INFRABEES	+28.66%
PSUBNKBEES	+23.23%
JUNIORBEES	+14.23%
BANKBEES	+13.71%
NIFTYBEES	+7.57%
GOLDBEES	-10.54%

Like a rocket…

Investment Theme Performance

Market Fliers	+36.20%
Long Term Equity*	+18.38%
Quality to Price	+17.71%
Consistent10*	+14.03%
Magic Formula Investing	+13.13%
Momentum 200	+11.97%
Enterprise Yield	+11.48%
Balance-sheet Strength	+9.33%
Growth with Moat	+7.35%
IT 3rd Benchers	+5.82%
Financial Strength Value	+4.92%
Efficient Growth	+4.42%
Market Elephants	+3.00%

Every single investment strategy ended in the green…

Sector Performance

Yield Curve

Interbank lending rates

Thought to sum up the month

Warren Buffett:

My most surprising discovery: the overwhelming importance in business of an unseen force that we might call “the institutional imperative.”

For example:

As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction;
Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds;
Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and
the behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.

Source: Warren Buffett: These were my biggest early mistakes

Categories Your Money Tags monthly

Public Sector Banks: Is this time different?

shyam May 31, 2014September 9, 2014

A tale of three indices

The NSE has three financial indices listed that provides a rare window into how different parts of the financial sector has performed over the years.

Index	Inception Date
CNX PSU BANK	2004-01-01
CNX FINANCE	2004-01-01
CNX BANK	2000-01-01

Return profiles

Returns in the financial sector comes with some very fat tails. If one could consult an oracle on the timing of these big swings, there’s a pretty packet for them.