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PERFORMANCE OF MOMENTUM STRATEGY WHEN BENCHMARK INDEX FALLEN BY MORE THAN 15% IN 12 MONTHS









PERFORMANCE OF MOMENTUM STRATEGY WHEN BENCHMARK INDEX FALLEN BY MORE THAN 15% IN 12 MONTHS

 By VAISSHNAVI GUNDREDDY(1st year MBA, VIT BUSINESS SCHOOL)
        NITHIN BHARGAV(1st year MBA,VIT BUSINESS SCHOOL)

“Our focus of the study in this research is the performance of momentum strategy when the index for NIFTY 50 has fallen by 15% or more” - this  is in continuation with the Paper1 (performance of momentum strategy for Nifty 100 stocks for period 2011 to 2019). 
Whenever the index has fallen by more than 15% in 12 months(1year) at any point of time in history(since 2010), we will follow with the below hypothesis:
Hypothesis 1- Testing the performance of stocks with high positive momentum by going long for next 6 months
Hypothesis 2- Testing the performance of stocks with high momentum on the downward or negative side by going short for next 6 months
Methodology:
In Hypothesis 1:  Test on long portfolio was done. Long portfolio is the group with the higher positive momentum, it is formed based on the slope and reliability. So, in the long portfolio, we have taken the top quartile(4-2) for investing. And, we noted the results.
In Hypothesis 2: Test on the short portfolio was done. Short portfolio is a group with negative momentum, this is again formed based on slope and reliability. So, in the short portfolio, we haven the lower part(1-2) for investing. And, we noted the results eventually.
Observations:

For Hypothesis 1: The long portfolio gave positive returns in all observations. Every time a long portfolio was able to beat the performance of the Benchmark index (NIFTY50). The representation of the returns of the test-




We have taken nearly 17 observations for Hypothesis 1. All the, 17 observations of cumulative returns are positive i.e., trading results are greater than the benchmark results. So, here the success ratio for cumulative returns is 100%(17/17). And, in the case of comparison with sharpe ratio out of 17 we got the positive results for 16 (16/17). So, the success ratio here for sharpe ratio is 94.11%. 





For Hypothesis 2: The short portfolio gave negative returns in all observations. In none of the observations, short portfolio was able to beat the benchmark. The representation of the returns of this test-





We have taken, 17 observations here as well. All, the 17 observations of cumulative returns and sharpe ratio are showing negative result i.e., trading results are lesser than the benchmark results. So,the success ratio is 0%(0/17). 





Conclusion-

Based on the analysis, we can conclude that it is better for an investor to invest in a Long portfolio( Hypothesis 1) whenever the benchmark index has fallen by more than 15% in a year. As, market is a cycle we will eventually see a rise after the fall and that happened in this case, and so the long portfolio worked. 



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