Tag: correlation

Correlation Update 17.01.2015

Nifty one year daily return correlations

Nifty one year daily return correlations

Nifty one month daily return correlations

Nifty one month daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one month daily return correlations

Bank Nifty one month daily return correlations

Midcap one year daily return correlations

Midcap one year daily return correlations

Midcap one month daily return correlations

Midcap one month daily return correlations

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

Correlation between Theme components

If you concentrate your portfolio, your mistakes will kill you;
If you diversify, the payoff from your successes will be diminished.
-Howard Marks

Investors can now look at the correlation (over one-year and one-month horizons) between stocks that make up an investment ‘Theme’ strategy. For example, here’s how the one-year correlation of the Financial Strength Value Theme looks like:

one year correlation

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

Happy Sankranti and Pongal!

Correlation Update 10.01.2015

Nifty one year daily return correlations

Nifty one year daily return correlations

Nifty one month daily return correlations

Nifty one month daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one month daily return correlations

Bank Nifty one month daily return correlations

Midcap one year daily return correlations

Midcap one year daily return correlations

Midcap one month daily return correlations

Midcap one month daily return correlations

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

Nifty Correlations

It is useful to visualize the correlations of returns between individual stocks in an index. If correlations are high, betting on the index as a whole could be more profitable compared to picking single stocks. Low correlations, on the other hand, is a stock-picker’s dream. Here’s how the NIFTY correlations stack up.

One year daily returns

cnx nifty correlations.2014-1-1

One month daily returns

cnx nifty correlations.2014-12-1

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

We plan to update these on a weekly basis.

Returns on Reliance

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Image via Wikipedia

We had discussed how risk and return are two sides of the same coin (read the series here). Also, we looked at the high price correlation of Reliance vs. the Nifty 50 index. The question yet to be answered is this: given a choice between owning Reliance and owning the NIFTYBEES ETF, what should an investor do?

Lets look at the pros of owning the NIFTYBEES:

  1. The NIFTYBEES represent the broader market. Investors get a diversified, market-weighted portfolio.
  2. 8.73% of the NIFTYBEES is, in fact, Reliance. So investors do get a slice of exposure to Reliance.

Now what would be the disadvantages of owning the NIFTYBEES vs. owning Reliance outright?

  1. If Reliance out-performs the index, then investors only get a small (8.73%) of the increase
  2. Investors may not want to buy the entire index and might prefer a concentrated portfolio of just resource stocks, of which Reliance is one.

To answer this question, lets turn our heads to two measures: alpha and beta (discussed here.) Reliance has an alpha of -0.0002946529 and a beta of 1.027928. What this shows is that Reliance actually underperformed the index (a –ve alpha) and it more or less tracked the index (a beta close to 1; confirmed by our correlation study.)

We are in the process of rolling out alpha and beta of individual stocks against the Nifty 50 index. Stay tuned!