Grasim was at the bottom of rankings on 29 Dec 09 and now it is at the top of the ranking list. What does this mean? This means that end of Dec Grasim was ready to outperform Nifty. Did it outperform? Yes. Long Grasim, short Nifty delivered 13% over the last 30 days. This means 158% non leveraged annualized spot returns. Now that Grasim has hit a top, a performance reversal should not be far away, when Grasim starts to underperform Nifty. We will keep you posted on the same.
Meanwhile the anticipated breakdown we have been talking on markets happened. Banks and Technology pushed lower in rankings. The new top potential underperformer sector is FMCG, followed by Oil which climbed up from much lower rankings. The top potential underperformer sector is metals, preceded by small cap and capital goods. Stock specific, the top two places are unchanged. Grasim and Infosys remain the top underperformer stocks for two weeks in a row. Tata Motors and M&M also seem overstretched in performance and should not sustain outperformance against Nifty for long. HDFC performance cycles continue to suggest that there is more catch up for stock against Nifty. Another financial stock, SBI pushed lower to the end of the list. The latest Alpha India also carries the net change in rankings since 1 Oct 09. Grasim, Infosys were the fastest positive changes while ICBK and Sterlite were the fastest negative changes.
Performance cycles
ALPHA is a pair trading, long only – short only strategy and Numeric Ranking product based on TIME fractals. Time arbitrage, Time Triads, Time fractals are terms coined by Orpheus Research. The signals are carried over three different time frames viz. sub minor (2-3 days), minor (10-30 days) and intermediate (above 30 days). This is a daily signal product. The signals will be illustrated through tracker and running portfolios. Alpha can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades. This is a part of the time triads analytics developed by Orpheus Research.
TIME ARBITRAGE portfolio has 18 pairs CNXIT-NIFTY, RELIANCE-NIFTY, TCS-NIFTY, ONGC-NIFTY, INFOSYS-CNXIT, ONGC-RELIANCE, HDBK-ICBK, BHEL-ACC, GRAS-LNT, HLL-ITC, SBI-HDFC, NIFTY-STERLITE, NIFTY-HDBK, SBI-NIFTY, BHEL-NIFTY, NIFTY-ACC, TCS-CNXIT and SBI-HDBK. Minor degree averaged 10-30 days and intermediate degree trade averages above 30 days. The legs should be risk weighted before any implementation. We are assuming a running stop loss of 4% per traded pair. CNXIT/INFOSYS +A-B means LONG CNXIT, SHORT INFOSYS. While CNXIT/INFOSYS –A+B means SHORT CNXIT, LONG INFOSYS.
LONG ONLY, SHORT ONLY portfolio covers NIFTY, CNXIT, NSEBANK, RELIANCE, INFOSYS, ONGC, CIPLA, ICICI BANK, HDFC BANK, TISCO, BHEL, ACC, GRASIM, L&T, HLL, ITC, SBI, HDFC, STERLITE
STOP LOSS AND EXITS are activated at 4%
Performance cycles is a term coined by Orpheus Capitals. This is another name for time triads, time arbitrage, time fractals but expressed in terms of relative performance. It’s a bounded oscillator that moves in a range say from 1 to 30. 1 is top relative performance and 30 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick.
*This is a strategy product. Long Short strategies are not riskless strategies. Please mail us for a detailed working or consult a local financial risk manager to execute these pairs. For more details please subscribe to the ORPHEUS TIME ANALYTICS research products.
Time is a social construct and we see time through the life and nature around us. Understanding time can not only give a unifying theory to research of a few thousand years, but also help us understand the world we live in. Time evolves, oscillates and continues. Time comes before everything, but we don’t see it. We just feel it. We believe what we see and this is why understanding what we don’t see is a challenge. Understanding time could bring more than a conventional thought down, it’s a revolution, which could rock the very foundation of economic thought or the geometric structures Euclid laid down in 300 BC. We are at the start of the journey, but if time is indeed the real mathematics, we could see high accuracy in time forecasts.
Econohistory is the study of performance cycles between assets. Cycles are the generic name for time fractals. Performance cycles can be studied for any time frame, for as small as a tick data to multiyear time frames. This objective approach to performance cyclicality can explain why intermarket analysis is an area of study? Why bonds and commodities tend to be inversely related? What is the connection of Oil with world markets? Why the world watches DOW sometimes and sometimes a 500 point effect on DOW seems to have no impact? Why correlation between assets moves from near perfect at times to weak correlation at other times? Why the same news has different impact on a stock or market? Why equities and bond trend together and why the relationship decouples sometime? When will inflation become deflation, disinflation, stagflation or hyperinflation? When and why does gold outperform and underperform silver? Econohistory can objectively answer these questions, using performance cycles, time fractals and past data. Economic history is mathematical.
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ORPHEUS RESEARCH AT REUTERS – UNITED KINGDOM
4 Comments
Hi,
I’m an avid reader and think you guys are on to something big! A couple of queries..
1. How do you work out which stock is topping or bottoming out? And how much longer the under/out performance will continue?
2. In the above report, the metals sector is an underperformer, whereas most leading metal stocks are outperformers. Is there a contradiction or have I missed something?
Thanks for the kind words and post. The idea is very simple. Performance is cyclical and always against a benchmark. What we have done is just created a performance cycle methodology with which we can see where a certain asset is placed compared to it’s benchmark.
If the stock is on high of the performance cycle, we know it will start to underperform soon and vice versa. Peformance cycle is a part of time fractals. This means how long a certain asset may outperform or undeperform depends on what time frame you want to study performance on, performance intra day, peformance for a few days, few weeks, few months or few years.
Regarding your other question, you are comparing metal majors in NIFTY with BSE METALS composite Index. This is why the difference.
Orpheus Research
Hi, today I have made a pair trade of Hdfc Bank; Kotak Bank. I have bought Kotak Bank ( March Futures) at 715; shorted HDFC Bank at 1696. Please guide me. Am I doing the right thing or not. Regards, Pramod Mann
Thanks for the post. Few things…If you go long and short withouth having an equal value of exposure on each side, your strategy can bomb. Second, our Numeric ranking for Indian stocks beyond Nifty 50 is for subscribers only. Please subscribe to Orpheus India Research services for further inputs.
Orpheus Research