Profit booking on the minds of NIFTY-50 INDEX investors as it performed better than the broader market

NIFTY-50 performed better than the broader market on Thursday. It lost -1.69% to close at 10601.2. On a day when the overall market breadth was 71%, it closed higher than 40% of the market. In comparison, the benchmark NIFTY-50 index closed today at +0.19%.

Buy-and-Hold investors in NIFTY-50 experienced a maximum drawdown of -13.45% over the last three months. It lost -8.11% during this down trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals. The net profit from Short signals was +5.36%.

Trend

Monthly Performance

Heatmap

Volatility

Return distribution

During the last three months NIFTY-50 was mostly loss making and delivered on average -0.14% per day. It's best return during this period (of +2.32%) was on Friday, 12 Oct, 2018. While it's worst loss in the same period (of -2.67%) was on Friday, 5 Oct, 2018. There was initially a bearish trend during this period which started on 17 Sep, 2018 and went on till 24 Sep, 2018. The trend delivered -4.85% losses to investors. This was followed by a bullish trend that started on 26 Nov, 2018 and ended on 3 Dec, 2018. This bullish trend delivered +3.35% to investors.

NIFTY-50 had 6 profitable and 6 loss making months over the last year. During the last year, number of profitable months of NIFTY-50 and NIFTY-50 index were the same. Both NIFTY-50 and NIFTY-50 index delivered almost identical returns during their best performing months. NIFTY-50 and NIFTY-50 index, both had periods of 2 consecutive profitable months. It is interesting to note that both NIFTY-50 and NIFTY-50 index significantly outperform during months when quarterly/annual results are announced.

Minimizing downside risk while maximizing the upside is a powerful concept.
-- Mohnish Pabrai

NIFTY-50 is becoming less volatile overall. In comparison, the NIFTY-50 index is seeing a fall in volatility. During the last three months, there was a significant fall in NIFTY-50's volatility from 8 Oct, 2018 to 5 Dec, 2018. While there was a significant fall in the NIFTY-50 index's volatility from 8 Oct, 2018 to 5 Dec, 2018.

Advanced/professional short-term investors should note that NIFTY-50 has significant positive skewness in it's return distribution. This indicates that investors can expect NIFTY-50 to recover from drawdowns quickly. Which makes NIFTY-50 a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.

Investors trading in NIFTY-50 derivatives at this moment can consider 'Long Strangle' options strategy to receive better risk-adjusted returns.

NIFTY-50 index has more chance of extreme outcomes than NIFTY-50. Therefore, NIFTY-50 must receive a lower allocation than NIFTY-50 in your portfolio. NIFTY-50 index usually has shorter drawdown period than NIFTY-50.