oh ok, Viswanath I could find out the reason for 1). but for 2, I would wait for your help in answering.
Trust you found it useful.
My understanding is that this index is rebalanced twice a year, on 31st Jan and 31st July.
When the index gets updated, I add / delete the stocks in the sheets, “Smallcap 250 table” and “Raw Data”.
Last time several stocks were shifted from Smallcap index to Midcap index. This meant a lot of changes.
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Hello @BalaKishore_Nukala Not exactly; I will clarify.
The ranking list is for someone who is entering today.
If you see the explanatory notes I have attached at the bottom of the list, you will see the changes to my portfolio. For example, this week I should actually exit MAPMYINDIA, MEDANTA and MRPL. However, MEDANTA and MRPL are still within the top 25 and remain in my portfolio.
Similarly, this week I should enter CHALET, CYIENT and ZENSARTECH. However, only CHALET enters as there is no vacancy for the other two.
Trust this clarifies.
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well that’s quite a huge task to rebalance the index every six months)
i have another question -
While you’ve calculated normalized Z Score at the bottom of raw data sheet, but in the parallel worksheet. you’ve picked ranking of momentum ratios (for 6M,12M and for (strangely) normalized z score).
it seems you’ve replicated 200Momentum30 index - and if that be so, one should rank basis normalized Z scores only to pick top 30 stock, instead of looking at Momentum ratios.
Would you elaborate why have you ranked basis momentum ratios in smallcap 250 table?
Oh yes, it indeed was very helpful. While i took couple of hours to understand each formula and hten had to lean on to Momentum 30 index methodology)
I haven’t had thought hard about log returns you’ve used for St Dev, but will read it.
however, one comments and question - Wouldn’t it make sense to straightaway pick Momentum 30 index to invest than to do this every week? (not withstanding the short term capital gains it will incur)
Thank you @visuarchie detailed clarification. one more query so you will be rebalancing based on monthly / Quarterly ?.
Hello @Rajneesh_Vashisht 6m and 12m have ranking based on momentum ratios only. I have used them to give me a feel of which stocks are doing what over 6m and 12m look back period.
Actually, ranking for me is based on Normalised Z scores only.
You are right; I have used the inputs from 200Momentum30 to create my sheet. As you know, 200Momentum30 is based on Nifty 200 index. I have used the Small250 universe to create my pf.
@BalaKishore_Nukala I will rebalance my pf every week. The universe is rebalanced twice a year why NSE does the index change.
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thanks for your reply. appreciate it. So, we are getting kind of aligned:)
i haven’t delved much into log returns part, and how that is important, but trust you to be on top of what you’re doing.
but then, wouldn’t it make sense to add more qualifiers to what is recommended by Momentum index, as you’ve put so much of efforts for replicating it realtime.
eg, let’s say should we not think of adding more allocation to top rankers (btw you’ve done that by keeping them run up if they don’t go lower than rank 25). would u mind sharing how is allocation for each of PF constituents?
you know what? i checked the ranking of total returns for last 12/6months and PF constituents will be same as if we rank basis Z scores. (barring ±1 constituents), Ranking offcourse changes…
So what’s the fun of doing all the pain for finding z score if that information is not being loaded/added into final PF construction
Hello @Rajneesh_Vashisht You are right. I could have changed the allocation differently for the top 5 or bottom 5, but this requires some back testing to check the efficacy. Therefore, I decided to go ahead with equal weighting when I started. For someone who is starting now with the list, I would recommend to start with equal weighting of 5% for each of stock.
Now, since I have let the winners run (without trimming them back to 5%), my weighting is very different to when I started. Every week, the value of entry is equal (more or less) to the value of exit.
I am not fully clear of the question. Can you please reword it?
what i meant was that instead of ranking basis zscores, if we rank by plain 6month return, top 25 remains almost the same in both cases. check that in your sheet, as it is only 1 constituent changes.
so, i am yet to figure out how does it help to do all that complicated stats of finding zscores, if the PF constituents basis vanilla total returns would be almost identical.
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here is a caution and I am sure you have thought about. Small caps are running ahead of valuations since last couple of months. And when the carnage happens, all the 25 constituents give poor (or negative returns)
btw, I was going through a vlog that momentum and value strategies are inversely correlated. so, it was recommended to either have 50-50 of both strategies rebalanced periodically OR move from one strategy to another by moving entire portfolio when the carnage starts in smallcaps
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Got it. Two factors were considered.
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Volatility of individual stock gets captured in the momentum ratio. How this compares with the universe gets captured in the Z score. If there have been particularly volatile stocks that have given good returns also, then they could be caught by this.
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I have tried to use both 6m and 12m look periods to arrive at final list. This is a way to use both time periods. I have used 50% weightage for both time periods. One could use different weightage, like 70% for near term performance (6m) and 30% for long term performance (12m) or any other ratio. This calculation will lend us to do this type of analysis.
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Yes, this is a risk very well considered. This is a risk with momentum pfs always.
I have chosen to go ahead, but my thinking is that I will still hold the strongest 20 stocks in the index even if the market is down. This is the only consolation that my drawdown might be lower. I have also not gone outside of the index as I believe the index already contains the strongest stocks.
Understood Point1, Yes, Momentum ratio captures, volatility(SD). however, I was not comparing mometum ratio ranking with Z score sanking, but plain vanilla 6 mnoths return vs z score. So with volatility or wihtout volatility accounted for constituents are almost same. May be this is bull run, therefore volatitlity is minimal and therefore not reflecting. calls for some more deep thinking.
on point 2 - i did change the weight - hardly any change in constituents.
Offcourse Ranks change and that calls for a case worth considering allocation of stocks basis ranks. but then, i agree to your argument that at this situation when bull run can burst in smallcaps, it is foolhardly to tinker the weightage of stocks without backtesting.
oh yes, I am pretty late to the party in smallcaps, so there is a lot of risk for me in particular to pick the momentum now going forward.
I may pick a high risk path of riding the bull run as long as it lasts and come out in shortest possible time when the tide turns. (yeah i know all the pundits say that one can’t time the market, and I kind of agree, I have failed to time multiple time).
but then, I thank you for replicating the Momentum index into Smallcaps. that’s great work for mortals like us.
and I will be keen to know what is the allocation of your PF for each stock, eg for BSE scrip - how much weight it has added to from the starting point.