OIL, FMCG, AND CAPITAL GOOD SECTORS SHOULD OUTPERFORM.
The quarterly performance ranking for Indian sectors suggest metals, technology and banks are topping sectors while OIL, FMCG and capital goods are bottoming sectors. The idea of numeric ranking sectors is to reduce or exit current top performers (future potential underperformers) and vice versa. Despite all the buzz, the sector leaders are witnessing exhaustion and turn down in performance cycles. A reversal in performance cyclicality of small cap, mid cap, technology and banking does not augur well for the market. Moreover performers like FMCG, health care are defensive sectors. How markets behave from here remains to be seen, but the NR (numeric ranking) mandate is clear. We did the same exercise for all the 30 Sensex stocks. The idea remains the same reduce the top ranked stocks from the portfolio and increase or stay invested in the worst ranked stocks.
TOPPING SECTORS
BOTTOMING SECTORS
BASED ON NR BHEL, LNT, ONGC…
…SUGGEST LEAST DOWNSIDE PRESSURE
PORTFOLIO
BHEL DELIVERS 7%, DESPITE SIDEWAYS ACTION IN BLUE CHIPS
NIFTY PAIRS
Since banking is ready to underperform the blue chips, a similar signal appears in sector stock viz. SBI. We are monitoring the SBI vs. NIFTY pair signal to turn in favor of Nifty i.e. Long Nifty, Short SBI. On the other hand capital good sector is set to outperform Nifty, so stocks like ACC and BHEL should outperform the NIFTY. We are expecting a reversal of signal on NIFTY vs. ACC in favor of ACC and a fresh signal in BHEL vs. NIFTY pair. About Grasim vs. LNT, the performance cycle suggests that the best of the pair performance is behind us as Grasim (black line) fell sharply from top performance (30) to worst (1).
CNXIT SET TO UNDERPERFORM NIFTY
TECH underperformance against blue chips should not only initiate a minor signal LONG NIFTY – SHORT CNXIT but also exit the intermediate signal for the respective pair. NR between sectors and stocks should also assist in pair selection and anticipation of performance trends between stocks and sectors.
VALUE SHEET
Pair trading has a lot to do with hedging the value of two assets. The enclosed value sheet illustrates the quantity of future contracts (or units) to be bought and sold to get a value hedge. As you can see we have used Betas of both the stocks against Nifty and created a value ratio. Near 1 value ratio suggests that the hedge is proper and running. We have classified the value sheet into three types based on trading usage.
BETA SHEET
Beta sheet illustrates the beta values for various stocks covered in Alpha as pairs.
BETA: Sensitivity of a stock to the market benchmark (NIFTY)
VALUE HEDGING: When beta’s of the two asset taken in a pair are similar we are hedging values (equating) of the two assets.
PROBLEMS WITH BETA HEDGING: Beta hedging is used when value of the assets are different. To keep the hedge value constant, beta is tracked over the hedged time horizon.
TIME ARBITRAGE: Unlike mean reversion, time arbitrate aka performance cycles is based on time fractals.
8 SIMILAR BETA PAIRS: We have carried 8 pairs with similar beta.
BETA CALCULATION: We used three years of beta data (1 yr, 2 yr, 3 yr) and looked for similar beta pairs.
MEAN BETA: Mean beta takes the average of beta value over the 1, 2 and3 yr period.
BETA TRACKING ERROR: Beta tracking error comes into place when we are not doing value hedging.
MARKET POLARITY AND PERFORMANCE CYCLES: Value hedged pairs should not be effected by market direction (polarity).
To access the member’s area or Orpheus estore click here.
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 five pairs now viz. Reliance – Nifty, CNXIT-Nifty, TCS-Nifty, CNXIT-Infosys, Nifty-ONGC. The above tracker will be updated on a daily basis. The freshly opened trades will have the shortest holding periods. The type of trade will be depicted in the degree i.e. sub minor (2-3 days), minor (10-30 days) and intermediate (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 means LONG CNXIT, SHORT INFOSYS. This also means +A-B. When the pair inverts to INFOSYS/CNXIT, it would mean SHORT CNXIT, LONG INFOSYS meaning -A+B.
LONG ONLY, SHORT ONLY portfolio covers NIFTY, CNXIT, NSEBANK, RELIANCE, INFOSYS, ONGC, CIPLA, ICICI BANK, HDFC BANK, TISCO.
STOP LOSS AND EXITS are activated at 4%
Please feel free to mail us for any clarifications. *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.
ORPHEUS RESEARCH AT REUTERS – UNITED KINGDOM
ORPHEUS RESEARCH AT REUTERS – USA
ALPHA INDIA – Numeric ranking: Reduce metals, tech and banks
OIL, FMCG, AND CAPITAL GOOD SECTORS SHOULD OUTPERFORM.
The quarterly performance ranking for Indian sectors suggest metals, technology and banks are topping sectors while OIL, FMCG and capital goods are bottoming sectors. The idea of numeric ranking sectors is to reduce or exit current top performers (future potential underperformers) and vice versa. Despite all the buzz, the sector leaders are witnessing exhaustion and turn down in performance cycles. A reversal in performance cyclicality of small cap, mid cap, technology and banking does not augur well for the market. Moreover performers like FMCG, health care are defensive sectors. How markets behave from here remains to be seen, but the NR (numeric ranking) mandate is clear. We did the same exercise for all the 30 Sensex stocks. The idea remains the same reduce the top ranked stocks from the portfolio and increase or stay invested in the worst ranked stocks.
TOPPING SECTORS
BASED ON NR BHEL, LNT, ONGC…
…SUGGEST LEAST DOWNSIDE PRESSURE
PORTFOLIO
BHEL DELIVERS 7%, DESPITE SIDEWAYS ACTION IN BLUE CHIPS
Since banking is ready to underperform the blue chips, a similar signal appears in sector stock viz. SBI. We are monitoring the SBI vs. NIFTY pair signal to turn in favor of Nifty i.e. Long Nifty, Short SBI. On the other hand capital good sector is set to outperform Nifty, so stocks like ACC and BHEL should outperform the NIFTY. We are expecting a reversal of signal on NIFTY vs. ACC in favor of ACC and a fresh signal in BHEL vs. NIFTY pair. About Grasim vs. LNT, the performance cycle suggests that the best of the pair performance is behind us as Grasim (black line) fell sharply from top performance (30) to worst (1).
CNXIT SET TO UNDERPERFORM NIFTY
TECH underperformance against blue chips should not only initiate a minor signal LONG NIFTY – SHORT CNXIT but also exit the intermediate signal for the respective pair. NR between sectors and stocks should also assist in pair selection and anticipation of performance trends between stocks and sectors.
Pair trading has a lot to do with hedging the value of two assets. The enclosed value sheet illustrates the quantity of future contracts (or units) to be bought and sold to get a value hedge. As you can see we have used Betas of both the stocks against Nifty and created a value ratio. Near 1 value ratio suggests that the hedge is proper and running. We have classified the value sheet into three types based on trading usage.
BETA SHEET
Beta sheet illustrates the beta values for various stocks covered in Alpha as pairs.
VALUE HEDGING: When beta’s of the two asset taken in a pair are similar we are hedging values (equating) of the two assets.
PROBLEMS WITH BETA HEDGING: Beta hedging is used when value of the assets are different. To keep the hedge value constant, beta is tracked over the hedged time horizon.
TIME ARBITRAGE: Unlike mean reversion, time arbitrate aka performance cycles is based on time fractals.
8 SIMILAR BETA PAIRS: We have carried 8 pairs with similar beta.
BETA CALCULATION: We used three years of beta data (1 yr, 2 yr, 3 yr) and looked for similar beta pairs.
MEAN BETA: Mean beta takes the average of beta value over the 1, 2 and3 yr period.
BETA TRACKING ERROR: Beta tracking error comes into place when we are not doing value hedging.
MARKET POLARITY AND PERFORMANCE CYCLES: Value hedged pairs should not be effected by market direction (polarity).
To access the member’s area or Orpheus estore click here.
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 five pairs now viz. Reliance – Nifty, CNXIT-Nifty, TCS-Nifty, CNXIT-Infosys, Nifty-ONGC. The above tracker will be updated on a daily basis. The freshly opened trades will have the shortest holding periods. The type of trade will be depicted in the degree i.e. sub minor (2-3 days), minor (10-30 days) and intermediate (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 means LONG CNXIT, SHORT INFOSYS. This also means +A-B. When the pair inverts to INFOSYS/CNXIT, it would mean SHORT CNXIT, LONG INFOSYS meaning -A+B.
LONG ONLY, SHORT ONLY portfolio covers NIFTY, CNXIT, NSEBANK, RELIANCE, INFOSYS, ONGC, CIPLA, ICICI BANK, HDFC BANK, TISCO.
STOP LOSS AND EXITS are activated at 4%
Please feel free to mail us for any clarifications. *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.
ORPHEUS RESEARCH AT REUTERS – UNITED KINGDOM
ORPHEUS RESEARCH AT REUTERS – USA