MCX investors re-evaluating their investment strategy

MULTI COMMODITY EXCHANGE delivered lacklustre performance on Friday. It delivered -1.12% to close at 742.2. On a day when the overall market breadth was 71%, it closed higher than 41% of the market. In comparison, the benchmark NIFTY-50 index closed today at +0.02%.

[Themes containing MCX]

Buy-and-Hold investors in MCX experienced a maximum drawdown of -15.15% over the last three months. It delivered -4.2% during this bearish trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals.

Trend

Monthly Performance

Alpha (outperformance)

Heatmap

Volatility

Return distribution

MCX has been underperforming the NIFTY-50 index in recent time. It showed significant underperformance (compared to the NIFTY-50 index) from 12 Dec, 2016 to 28 Sep, 2018. Over the last 3 years and 1 month, MCX underperformed the NIFTY-50 index on 55% days.

During the last three months MCX was mostly loss making and delivered on average -0.03% per day. It's best return during this period (of +10.41%) was on Wednesday, 24 Oct, 2018. While it's worst loss in the same period (of -14.37%) was on Thursday, 25 Oct, 2018. The longest stort-term trend during this period was 6 profitable days, which started on 8 Jan, 2019 and went on till 15 Jan, 2019. This bullish trend returned +5.29% to investors.

The last 12 months saw MCX's investors making profits in 7 months and incurring losses in 5 months. During the last year, MCX delivered profits in more months than NIFTY-50 index. MCX significantly outperformed NIFTY-50 index in Jul 2018, when it returned +23.18% compared to +6.56% returned by NIFTY-50 index during it's best month in the last one year - Jul 2018. MCX had a longer winning streak of profitable months than NIFTY-50 index. It went up in 3 straight months (from Nov 2018 to Jan 2019) during which period it delivered +5.61%. It is interesting to note that both MCX and NIFTY-50 index significantly outperform during months when quarterly/annual results are announced.

"I am particularly pleased to see that the Bendheim Center for Finance is thriving.

MCX is currently seeing overall fall in volatility. In comparison, the NIFTY-50 index is seeing decrease in volatility. During the last three months, there was a significant fall in MCX's volatility from 22 Oct, 2018 to 1 Jan, 2019. While there was a significant fall in the NIFTY-50 index's volatility from 31 Oct, 2018 to 5 Dec, 2018.

Advanced/professional short-term investors should note that MCX has significant negative skewness in it's return distribution. This indicates that MCX is very risky for short-term investment and can significantly underperform for long durations.

Investors trading in MCX derivatives at this moment can consider 'Married Put' options strategy to receive better risk-adjusted returns.

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

Based on your interest in MCX you may find it interesting to know that RESPONIND, IGARASHI and MERCK have all shown remarkable performance this year and deserve to be on every investor's watchlist.