{"id":2101573,"date":"2019-03-13T10:18:19","date_gmt":"2019-03-13T04:48:19","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2101573"},"modified":"2019-03-14T16:02:32","modified_gmt":"2019-03-14T10:32:32","slug":"index-valuations-part-ii","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2019\/03\/13\/index-valuations-part-ii\/","title":{"rendered":"Index Valuations, Part II"},"content":{"rendered":"

In Part I<\/a> of Index Valuations, we showed how the relative PE (price-to-earnings ratio) and PB (price-to-book ratio) of the NIFTY 50 and NIFTY MIDCAP 50 indices have varied over time. What would a portfolio that weighted each of these based on the relative valuation ratio look like?<\/p>\n

Backtest<\/h3>\n

Suppose, the relative ratio (R) = Ratio<\/em>(MIDCAP)\/Ratio<\/em>(NIFTY)
\nThen, at the end of every month, re-weight the protfolio so that portfolio (S1) = R * NIFTY + (1-R) * MIDCAP, and
\nportfolio (S2) = (1-R) * NIFTY + R * MIDCAP<\/p>\n

Ratio<\/em> can either be PE or PB<\/p>\n

PE based weights<\/strong>:
\n\"PE<\/a><\/p>\n

PB based weights<\/strong>:
\n\"PB<\/a><\/p>\n

It looks like:<\/p>\n

    \n
  1. a portfolio with PB based weights is a lot less volatile than the PE based one.<\/li>\n
  2. PB portfolio recovers much faster that the PE or plain-vanilla indices from deep drawdowns<\/li>\n
  3. PB out-performs an equal weight portfolio<\/li>\n<\/ol>\n

    You can track and map this strategy to your portfolio using the PB weighted NIFTY\/MIDCAP Theme<\/a>.<\/p>\n

    Code and charts on github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

    In Part I of Index Valuations, we showed how the relative PE (price-to-earnings ratio) and PB (price-to-book ratio) of the NIFTY 50 and NIFTY MIDCAP 50 indices have varied over time. What would a portfolio that weighted each of these based on the relative valuation ratio look like? Backtest Suppose, the relative ratio (R) = … <\/p>\n","protected":false},"author":2,"featured_media":2089693,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3541,3391],"class_list":["post-2101573","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-backtest","tag-nifty","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2101573","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2101573"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2101573\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2089693"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2101573"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2101573"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2101573"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}