Cross Hedging & HFT

D E Shaw India Software Private Limited.
IBS, Hyderabad.
Final Report
OF
THE SUMMER INTERNSHIP PROGRAM

AT
D E Shaw India Software Pvt. Ltd. [DESIS].
CROSS HEDGING AND HIGH FREQUENCY TRADING.

-The next buzz words in the hedge funds industry.
Submitted By: Abhishek Kr. Sinha 09BSHYD0023.
Submitted to: Dr. Kanchan M Herlekar Coordinator, Finance, IBS - Hyderabad.
Mr. Vishnu Pradeep Chilakamarri Manager, Futures & Compliance, DESIS - Hyderabad.
ICFAI BUSINESS SCHOOL, HYDERABAD.

Date of Submission: 14th May, 2010.
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A REPORT ON CROSS HEDGING AND HIGH FREQUENCY TRADING.

-The next buzz words in the hedge funds industry .
BY Abhishek Kumar Sinha 09BSHYD0023
D E Shaw India Software Private Limited, Hyderabad.

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ICFAI Business School, Hyderabad.
Final Report.
IBS, Hyderabad.
A REPORT ON CROSS HEDGING AND HIGH FREQUENCY TRADING

-The next buzz words in the hedge funds indus try.
BY Abhishek Kumar Sinha 09BSHYD0023
A Report submitted in partial fulfilment of the requirements of MBA program of IBS Hyderabad.
IBS & DESIS, HYDERABAD. May 14, 2010.

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Authorization
This is to authorize that Abhishek Kr. Sinha has successfully completed the Summer Internship Program (SIP) as a partial fulfilment of the requirement of MBA requirement at IBS, Hyderabad. The report Cross Hedging and High Frequency Trading is his original work.
During his SIP, I found him to be very sincere, dedicated and hard working. He followed all the rules of the organization. His performance and conduct was good. He possesses the ability to apply conceptual knowledge in practical situations.
I wish him a rewarding career ahead.
Vishnu Pradeep Chilakamarri Manager, Futures & Compliance, DESIS, Hyderabad.
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Acknowledgement
No report is solely the effort of one person. This report is certainly no exception, especially since it grew out of the collective work of employees of DESIS and faculties of IBS, Hyderabad.
I express my sincere gratitude to the director of DESIS, Mr. Rahul Patthak and associate director Mr. Deepak Paidipati for his valuable guidance and for giving us an opportunity to work in Futures- Finops team.
I am also thankful to my company guide, Mr. Vishnu Pradeep Chilakamarri for his incessant support and encouragement which was a key factor behind completion of this project. I also thank my faculty guide, Prof. Kanchan M. Herlekar for her help, guidance, invaluable suggestions during the entire SIP tenure and for giving me enough opportunities to use every resource of IBS, Hyderabad. I also thank Prof. Vishwanathan Iyer without whose support the dream of completing this project would have never come true. It was a rare opportunity to be with him and learn so many things. I also thank all my first year teachers specially Prof. Archana Pillai, Prof. D Satish and Prof. Nikhil Rustogi for being my teacher.
It was an altogether a different experience to be in Futures-Finops team. I thank the entire team which never made me feel that I was only an intern. Their support was unmatchable and they made my SIP experience worth learning.
Lastly, I would like to thank ICFAI Business School and DESIS for providing me an opportunity to learn so many things in a corporate environment.
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Contents
Abstract . 09 PART I: Cross Hedging Introduction.. 10 Basics of SSFs. 12 Literature Reviews... 13 Scope of this study... 14 Methodology & Working details. 10 The OLS Hedge ratio .. 19 Out sample Evaluation. 22 Simulating Formulae in MS Excel... 23 Results.. 25 Limitations & Recommendations.... 26 Appendix for Cross Hedging... 27 PART II: High Frequency Trading Introduction.. 54 Literature reviews 56 Implementation of High Frequency Trading... 56 Planning & Analysis 57 Design & Integration... 57 Implementation & Roll out. 57 Monitoring & Maintenance. 58 The algorithm behind the HFT.... 58 Price & Size. 59 Fill Ratio. 59 Transaction Cost.. 59 Time .... 59
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Aggression & sleath 60 HFT and the SEC. ... 61 HFT and sub penny quotes... 62 HFT speeds: how low one can go? ............................................. 62 The HFT debate: Cameron Smith vs. Sal Arnuk 63 Benefits of HFT... 64 Controversies hovering over HFT.. 64 Recommendations and the road ahead for HFT 66 Conclusion. 68 References.. 69
Abbreviations Used:-SSF: Single Stock Futures; IF: Index Futures; BV: Book Value; MV: Market Value; NSE: National Stock Exchange; OTC: Over the counter; HFT: High Frequency Trading, SEC: Securities and Exchange Commission.
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List of Tables, Illustrations and Appendix.

PART I: Cross Hedging Illustration I: Adjusted Closing Price of Sensex 14 Table I: An Example of hedging Spot X with 5 available SSFs ....... 17 Appendix Result I: Cross Hedging using correlation ... 27 Appendix Result II: Cross Hedging using Mahalanobis Metrics ..... 35 Appendix Result III: Best strategy [Excluding 1 SSF + 1 IF] ...... 43 Appendix Result IV: Best strategy [Including 1 SSF + 1 IF] ....... 52 Appendix Result V: Frequency of different strategic models .. 52 Appendix Result VI: Histogram of frequencies of different models 53 Appendix Result VII: Pie chart of frequencies of different models . 53
PART II: High Frequency Trading Illustration I: The bid/ask spread... 54 Illustration II: Queue follows FIFO... 55 Illustration III: One strategy of making money in HFT 60
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Abstract
This project first aims to evaluate the efficiency of cross hedging using single stock futures and index futures in the Indian market. A new technique has been proposed through which we hedge those stocks which do not have exchange traded single stock futures written on them. The performance of the cross hedging was evaluated based on the historical correlation of the adjusted closing price of the stocks and SSF or index future or both. As correlation alone may not be a sufficient criteria for finding the perfect match, three other important factors beta, book value/market value and market capitalization were augmented to the existing correlation model. Hence, four different models were constructed, namely cross hedging with only 1 SSF using correlation, only 1 SSF using Mahalanobis metrics, only 1 Index Future using correlation and finally using a combination of 1 SSF and 1 Index Futures. A new technique Simulating Formulae in MS Excel was discovered during my SIP which helped me to abstain from huge calculations.
The second part of this project is based on High Frequency Trading. Most of the trading activities across the globe are converging towards High Frequency trading. D E Shaw is also planning to implement this technology very soon. This part captures the essence of High frequency trading in a very concise way.
This SIP experience was phenomenal. I found DESIS as a perfect blend of finance and technology. I am happy that my SIP contributed to my learning and to my organization as well.
Keywords: Single stock futures, hedging, Mahalanobis Metrics, Simulating formulae in MS Excel, NSE, High Frequency Trading.
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Part I: Cross Hedging.

Introduction: We are very well familiar with the concept of Cross Hedging. Whenever we hedge X with a derivative of underlying Y, we are basically cross-hedging X with Y. However, the concept of cross hedging is not as simple as it appeared in the definition. Cross Hedging occurs when two assets are different. It is really very important that the cross derivative is chosen carefully. The three important parameters to be considered for any investment decision are primarily return, risk and liquidity. There is definitely more risk involved in equities compared to other investment alternatives.
Equities are highly exposed to risk if they are not hedged properly and efficiently. A very small portion of shares are available for the marginal shareholders whereas a vast portion of a companys equity is held by the various institutions and investment banks. There have been a significant number of cases where an investor prefers to go long with equity. Similarly, there are a variety of reasons why retail and institutional investors may have substantial undiversified exposures to single stocks. Sometimes, an investment bank may acquire shares through syndication that are subject to covenant legal agreement restricting their sale. Similarly, an investor may hold stock options that are currently deep in money but for which selling is not permitted for a prescribed period. A fund manager may have a large exposure to a stock that he does not want to close. Hence it is quite important for the investors to hedge these equities properly so that they can avoid any turbulence in future. This is the reason that some of the companies have both equities along with the single stock futures traded in the market.
Few investors argue of other available alternatives. One way that an investor could deal with such a problem is to enter into an offsetting short position. Short selling is likely to be a high cost tool because of its associated margin requirements, up tick trading restrictions, loan interest, and potential risk of a short squeeze. As well, there are potential problems in locating a stock to borrow and still there is a significant risk that the stock can be unexpectedly recalled. Another alternative is to use stock options. This is still impractical because a vast majority of the listed stocks do not have exchange traded
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options written on them and OTC [Over the Counter] markets are not directly accessible to the retail investors. The prices of the OTC options are less transparent and may be subjected to substantial premium and margin requirements based on the intermediaries and the nature of the bilateral relationship between the counterparties.
Futures contracts are likely to represent a much cleaner tool. Futures contacts have no premium, low transaction cost, low margin requirement, and more transparent pricing than the OTC options. If we compare the opportunity costs for all the available alternatives, futures definitely seem to be the best available option. Futures are preferred because of its higher liquidity and lower cost when compared to other hedging instruments.
However, the Futures market in India is still in their nascent stage and there are very few stocks whose single stock futures are also traded in the market. As on 16th April, 2010 there were only 190 Single Stock Futures available the National Stock Exchange of India Ltd. Hence, if we focus our study on the S & P CNX 500 companies, there are still 500190 = 310 equities which do not have its corresponding single stock futures available. The task of hedging is easier if the corresponding futures contract exists for a given stock. In such a case, the task is just confined to finding the optimal hedge ratio. However, there are many instances where the Futures contracts are not written for a given stocks. Hence, these equities are exposed to significant amount of risk and we need to find the best match for those spots so that they can be cross hedged.
It is not that the NSE has not addressed to this problem. We have index futures also traded in the market. As on 16th April, there are five index futures available Bank-Nifty, CNXIT, Mini-Nifty, Nifty Midcap and Nifty. How to hedge any equity is quite clear. The best option is to hedge an IT industry equity with CNXIT so that an optimum feasible hedging is achieved. Similarly, the equities related to bank can be hedged with the BankNifty index. The problem here is that when we hedge equity with its industry related index future, we are trying to cover only some part of the unsystematic risk. However, a significant amount of diversifiable risk and systematic risk is still totally exposed.
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Hedging with a stock index futures is certainly easy and cost effective, but may prove to be inefficient if the returns profile of the stock exposure is significantly different than that of the index as a whole. Even if we try to look more closely, we observe that still there are so many industries for which industry related futures are not available.
Here comes the idea of cross hedging. In the absence of the specified futures contract, the investor is left with no other choice but to hedge his position with some close substitute. The situation is very much similar even when the single stock futures contract does exist but are thinly traded in the exchange. In cases for which SSF contracts does not exist, the investor faces a choice: hedge with a stock index or cross hedge with futures contract of a closely written contract. A cross hedge can definitely be not as effective as a direct hedge because of the additional basis risk (i.e. the risk of non-convergence between the selected futures and the underlying stock at maturity.) If this concept can be applied with proper mathematical analysis, we can find a perfect and most efficient match for the equity. The concept of cross hedging has been degraded with the involvement of Basis Risk. Undermining of cross hedging because of basis risk can be prevented if we can select the appropriate futures contract carefully and calculate the optimum hedge ratio accordingly. The benefit of hedging with futures has been widely observed as a phenomenal instrument.
Basics of SSFs: A futures contract is a forward contract, which is traded on an exchange. NSE commenced trading in futures on individual securities on November 9, 2002. NSE has around 99.6% of the market share in the financial derivatives trading. Futures trading in India are allowed on single stock as well as on Index. NSE ranks first in the global derivatives market in terms of the number of traded on SSFs and second in Asia in terms of number of contracts traded in derivatives segment. NSE defines the characteristics of the futures contract such as the underlying security, market lot, and the maturity date of the contract. The futures contracts are available for trading from introduction to the expiry date. Futures contracts have a maximum of 3 month trading cycle the near month (one), the next month (two) and the far month (three). New contracts are
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introduced on the trading day following the expiry of the near month contract. This way, at any point in time, there will be three contracts available for trading in the market. There are three types of SSFs available Traded with an expiry of one month, two months and three months. In this project, I focus only on the near month SSF i.e. one month expiry contracts. Futures contract expires on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day. The base price of the future contracts on the first day will be the theoretical price. The base price of the contracts on the subsequent trading days will be the daily settlement price of the future contracts. There are no daily minimum or maximum price ranges applicable for the future contracts. However, in order to prevent erroneous order entry by trading members, operating ranges are kept at +/- 20%. In respect of orders which have come under price freeze, members would be required to confirm to the exchange that there is no inadvertent error in the order quantity and the order is genuine. On such confirmation, the exchange further approves the order.
Literature Reviews: I went through some of the research works done in this area. Most of them talks about proper estimation of the hedge ratio and elimination of basis risk upto some extent. However, there are very few research papers which talks about finding a proper match for the spot stocks. Chris Brooks, Ryan J. Daves and Sang Soo Kim gave a very interesting insight through their paper Reducing Basis Risk for Stocks by Cross Hedging. Another research work titled The Capital Asset Pricing Model: Theory and Evidence by Fama and French talks about the famous CAPM model and extends it with their own Three factor Fama and French Model. This research work shows that how some more factors can be augmented to arrive at valuation of an asset with more precision. Therefore, I was impressed by the idea of augmenting three more factors Beta, Market Capitalization and Book value/ Market value of the underlying assets to the correlation model for finding a perfect match.
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Scope of this study: This project is like a Financial Matrimonial which aims to find a perfect match for those equities for which Single Stock Futures are not available. So, in short, we are looking for the closest match for those spots whose SSF are not available. This project concentrates on the S & P CNX 500 companies traded in India. The reason behind choosing the index is that it represents about 92.57% of the total market capitalization. When I look for hedging, I will definitely hedge only those equities which are important and quite significant in the portfolio. Thus, it makes more sense to confine our study on the S&P CNX 500 companies. The inclusion in this index is itself an indication that it is widely traded in India. This study focuses on the time horizon from 5th October, 2007 to 31st March, 2010. The reason behind choosing this phase is simply because a new index future called MiniNifty started trading in NSE from 5th October, 2007. This phase has experienced bull phase, bear phase, recovery phase and again bull phase. The adjusted closing price of Sensex on 5th October, 2007 was 17,773.36 and on 31st March, 2010 was 17,527.77 which is an ideal phase for any study.
Adjusted Closing Price

25000 20000 15000 10000 5000 0 10/5/2007 10/5/2008 10/5/2009 Adj Close
Adjusted Closing Price of Sensex from 5 th Oct,07to 31 st Mar, 10
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Methodology and Working Details: As stated earlier, the concept of cross hedging has been degraded by the involvement of basis risk and hence it is important to select appropriate futures contract carefully. There has been plenty of research in the area of estimating an optimum hedge ratio but through this project, I aimed to find the optimum hedging asset. Hence, it was seen that the effectiveness of a hedge depends more on the selected futures than on the optimality of the estimated hedged ratio.
Prowess database does not give the details of Futures. It was extremely difficult to find the historical price of Futures traded in India even from Bloomberg. Hence there seemed to be only one way out. The Bhavcopy was downloaded for each day from the NSE website for the last two and a half years [5th October, 2007 to 31st March, 2010]. It contained the details of all the available derivatives including the Options and futures with different expiry periods and types. It was followed by a tedious task of sorting out the data for Single Stock futures and Index Futures with an expiry of one month. It was observed that there were only 145 SSF which were common to the first and the last day of our study period. As we are concentrating only on S & P CNX 500 companies, there are 145 companies whose SSF has been consistent and hence need not be cross hedged. For an example, Tata Motors which is listed in S&P CNX 500 index has its own SSFs available. So, whenever we will look to hedge the spots of Tata Motors, we can hedge it with the Single Stock Futures of Tata Motors. Hence in our portfolio of 500 companies, we have [500-145] = 355 companies which qualifies for cross hedging. Now, there were seventeen companies, whose data for a significant number of days were missing reasons being temporary ban or inclusion in the index after 5th October, 2007. So, we finally had 500-145-17= 338 spots that we need to cross hedge after doing some mathematical analysis. Data for spots was gathered easily from Prowess database.
The second problem was that the prices for a few days of a company was missing but in total, for 338 companies there were lots of similar problems. Those cells had to be replaced by the projected price or with the average of the prices for the entire duration
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because the returns calculation would have given #Div error and correlation would not have been that accurate. Because of time constraint, I chose to replace it with the average. This process was done instantaneously by Simulating Formulae in MS Excel which is discussed in the last part of this project.
After this, a simple Pearson Correlation was evaluated for the adjusted closing price of each spots with all the 149 Futures. The Future which reflected the maximum correlation was adjudged as the best match for the spot which we were trying to hedge. So, we had a best match for all the 338 spots which were in the portfolio. Three different models were proposed here:1) Cross hedging using only 1 SSF [Best of the 145 available SSF.] 2) Using only 1 IF and [Best of the 4 IF.] 3) Using Either 1 SSF or 1 IF [Best of the first two available alternatives.]
The results for the same can be obtained from the Excel sheets. Now, there was a serious flaw in this. We are hedging in order to abate the risk involved. However, here most of the Futures were illiquid. For an example, Mini Nifty was not traded at all for most of the days. What if we hedge it with something which does not trade for any volume for so many days? Thus, a filter was applied on the trade contracts volume of at least 100 everyday throughout. After fulfilling this pre-requisite, only 66 SSFs and 2 IFs qualified to be considered for cross hedging. As far as calculations are concerned, it really does not matter if we narrow down on the value of Futures because at the end of the day, we need to cross hedge all the 338 spots. Now, the Pearson correlation was carried out for each of the 338 spots with 68 futures and the highest correlation was adjudged as our Best Match for our three different models.
Now the question arises that is correlation sufficient enough to decide the best match for us. We have seen very well that how Fama and French augmented two more factors HML [High Minus Low] and SMB [Small Minus Big] to the famous CAPM [Capital Asset Pricing Model] to get valuation with more precision and accuracy. Similarly, three more factors were added to our existing correlation model Beta, Book Value/Market
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Value and Market Capitalization. So, in all now we had four different factors which will be taken into consideration to choose the Best Match for our 338 different spots:1) Correlation 2) Beta 3) Book Value/ Market Value and 4) Market capitalization.
Let us take a small example for now. We have a stock of X Company which does not have SSF written on it. We want to cross hedge it some other SSF. Suppose we have five different SSFs available. The three factors to be considered for finding a perfect match are Beta, Market Capitalization and Book Value/ Market value. Suppose the different values for the Stock and SSF are as follows:-
Beta Spot X SSF 1 SSF 2 SSF 3 SSF 4 SSF 5

0.1428 0.5763 0.9012 0.0125 0.7683 0.9213
BV/MV
0.24 0.45 0.56 0.67 0.89 0.77
Market Cap[in Crores]
2929 3074 4326 2398 3406 5235
An example: Hedging spot X with 5 SSFs available.
Now our aim is to find the most closely related Single Stock Future for the Stock. If we consider only one factor, Beta then the beta of the spot X is 0.1428. The closest beta from the five available SSFs available is SSF 3 which is 0.0125. It should be kept in mind that we are seeing the magnitude [modulus] of the difference. Similarly, if we consider the second factor, SSF Xs BV/MV of 0.45 qualifies to be the nearest to the BV/MV of Spot X whose value is 0.24. Similarly, SSF 3 qualifies to be the best match for the Spot X if Market Cap is considered.
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The nearest gap between the traits of the equity and the characteristics of the SSF qualifies for the best match. The value of nearest or farthest can be found through the measurement of distance. Euclidean distance is calculated by using the formula :-
Let us try this formula for finding a single factor, say Beta. The required distances between beta of SSF1 and Spot X is given by:[(0.1428-0.5763)] ^ = 0.43353. Similarly the beta distance between Spot X and SSF2, 3, 4 and 5 comes out to be 0.7584, 0.1303, 0.6255 and o.7785. Definitely, SSF3s beta is closest to the beta of Spot X.
However, the different factors should be considered simultaneously and not individually so that we can arrive at one particular perfect match. We cannot have different SSF match according to the different factors and at the end of the day, we should arrive at one match. Let us give it a try by using the Euclidian Distance.
The overall distance between Spot X and SSF 1 after taking into consideration the various factors, the Euclidean distance comes out to be:[(0.1428 0.5763) + (0.24-0.45) + (29290000000-30740000000)] ^ which comes out to be 1,450,000,000.
Does it make any sense? Definitely not. Euclidean distance is scale invariant and hence Beta whose range is generally -1 to 2 fails badly to compete with Market capitalization whose value is in thousand millions. Hence, we should use Mahalanobis distance instead of Euclidean distance. Euclidean distance is scale-invariant and hence does not take into account the correlations of the data set. It is worth mentioning that Prasanta Chandra Mahalanobis was an Indian scientist and applied statistician who founded Indian Statistical Institute. His birthday 29th June is observed as National Statistical Day. He was born in Giridih which is a few kilometers away from my village.
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As far as augmenting different factors are concerned, we need to calculate the Mahalanobis Distance. The Mahalanobis distance is given by :
Here, x implies values for the stock and implies Futures details. This is calculated by the square root of the matrix multiplication of the Inverse Covariance Matrix of the stock and Futures with the transpose of the difference between the different factors considered for the stock and equity. The working details of this distance are shown in the Excel Sheets. The Mahalanobis distance for all the 338 SSFs with the 68 different Futures was found and the Future with closest Mahalanobis distance for a particular spot was adjudged as the Best Match. Now, four different models were constructed here, namely:1) Cross hedging using only 1 SSF [Best of the 66 SSF based on Mahalanobis metrics.]
2) Cross hedging using only 1 SSF [Best of the 66 available SSF based on correlation.] 3) Using only 1 IF and [Best of the 2 IF based on Pearson correlation.] 4) Using Either 1 SSF or 1 IF [Best of the result of the second and the third model.]
Now, our objective was just half fulfilled. Now, it is really important to arrive at the optimum hedge ratio. When the hedge ratio is defined as the ratio of the futures exposure to the spot exposure, the nave hedge ratio of one is only optimal when the spot and futures returns are perfectly correlated and constant over the time. Clearly, this is not supported empirically. The key, therefore, was to estimate the optimal hedge ratio. There are again different methods to calculate the hedge ratio. The method which I have followed is the OLS Hedge ratio.
The OLS Hedge Ratio. The payoff of a hedged portfolio with a hedge ratio of one can be written as:PS ,T + P F ,T 1 P F ,T where PS indicates the spot price, and PF indicates the futures price. At time T-1, the hedge is put in place, and at time T, the hedging position is closed. When we consider cross hedging, equation (1) can be rewritten as:19 | P a g e
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P F ,T 1 + ( P* S,T PF ,T ) + ( P S ,T P* S,T ) where the superscript * indicates that the underlying asset of the hedging futures is different from the spot asset exposed. Equation (2) illustrates that the basis from cross hedging consists of two components. The first component, P*S,T PF,T, represents the basis risk from the difference in price at clearing time between the futures and the spot asset, given that the spot is the same as the underlying asset of the futures contract. The second component, PS,T P*S,T, captures the difference between the spot and the underlying asset of the futures contract. Since the first component of the basis risk cannot be controlled, the main concern in cross hedging is the minimization of the second component of the basis risk. That means that we have to select the optimal futures whose underlying asset has the most similar price movement to that of the spot asset.
The optimal hedge ratio that minimizes the variance of the payoff of the hedged portfolio is analytically the same as the slope coefficient of an OLS [Ordinary Least Square] regression of the spots returns on the futures returns.
j j
rS ,t = + HROLS r F,t + t
j
The error term of the regression represents the total basis risk involved. Thus, minimizing the basis risk is equivalent to minimizing the error term or maximizing the R^2. If the underlying of the futures is exactly same as the spot asset, then the correlation is also constant over the time and the amount of the spot asset is deterministic, then the OLS model will always produce efficient hedges. The extent to whichreality deviates from these ideal conditions dictates how well the OLS model will perform in practice.
The other approaches to estimate the optimal hedge ratio is to use econometric models such as the GARCH, which capture the time varying second moment of returns distributions. These models can be used to estimate a dynamic optimal hedge ratio that allows for time variation in the variance of future and in the covariance between the spot and future returns.
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All of these models, assume either that the best futures asset is optimally given to minimize the basis risk. It is really a huge challenge to minimize the basis risk. Through this hedging model, I have minimized the basis risk by selecting an optimal hedging futures instrument as well as estimating the optimal hedge ratio. We adopt the variance minimizing hedge ratio estimated using OLS because a comparison of the efficiency of the hedge ratio is not the main focus of this project. Even in the research work carried out by Brooks, it was observed that there was very marginal difference in out of sample hedging efficiency between hedge ratios estimated using OLS and with other more complex models. Moreover, in practice, the OLS hedge ratio is widely used by market players thanks to its simplicity of understanding and estimation. So, the hedge ratio was calculated for all cross hedging models proposed.
Now, to estimate the optimal hedge ratio, the daily returns from the spots and the Futures were calculated from 6th October, 2007 to 28th February, 2010. The last month March 2010 data was left out to evaluate the efficiency of this cross hedging model. There are two ways of finding the returns:1) [Pf Pi]/Pi. 2) ln[Pf/Pi] where ln is Natural Logarithm, Pf = Final Price and Pi = Initial Price.
The second formula is more accurate primarily because of two reasons. It is additive and symmetrical. Consider if the price of a stock fluctuates from Rs. 100 to 110 and then back to 100. So, the first formula will give returns as +10% and -9% whereas the second formula will give returns as +9.5% and -9.5%. Both the formulae has their own drawbacks but abnormal returns are taken care of in the second one more precisely.
Now, if we run the regression the spots returns and the futures returns, the slope [beta] will be the hedge ratio. To do it in Excel, one way was to go to solver data analysis and do regression for the 338 spots. The other way was to use the slope function to find the hedge ratio. This was again tough because it had to drag the returns of spots with its corresponding matched futures returns. Say, for an example, if Tata Motors is the best match for Infosys then we had to manually drag the entire two and a half years return
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values of Infosys as known Y and entire returns of Tata Motors as X. This manual work was again supposed to be done for the entire 338 companies for all the cross hedging models. This was done instantaneously by using Simulating formulae in MS Excel technique which is discussed in the last part of this project. A new cross hedging model was proposed here Cross hedging using 1 SSF and 1 IF. This was basically a combination of cross hedging using 1 SSF and cross hedging using 1 IF. The results of the output of these two cross hedging models qualified for this new model. However, this model had a drawback that the commissions charged will be higher because we had two different matches for the spots. So, we took highly significant spots which had market capitalization of more than 10, 000 crores as on 31st March, 2010. Only ten equities qualified for this model. Here, the hedge ratios would have been different for the two different match one SSF and the other, IF. Hence multiple regression was run and the two slopes for the two dependent variables gave the two hedge ratios. Linest function was used in MS Excel which gives the result for all the parameters which comes out in the output of multiple regression using solver data analysis. This linest function returns the values in matrix format and individual values were obtained by using Index function. The detailed workings of estimation of hedge ratio for all the different models were shown in MS Excel.
Out Sample Evaluation:The next task was to evaluate that which of these four models suited most to a particular spots. We know that if we posses a portfolio of one spot and hedge ratio times futures then the overall returns will be:Portfolio returns =Spots returns Futures returns Here, is the hedge ratio. Similarly for our cross hedging model using 1 SSF and 1 IF, Portfolio returns =Spots returns 1 Futures 1 returns 2 Futures 2 returns The value of this return should ideally be zero. If we go short in spots then we go long in futures to offset the loss and vice versa. So, profit making is not the focus of this project but the core objective is to hedge the spots. In the process of hedging, if one is able to make some money, it is simply a cherry on the cake.
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The efficiency of cross hedging models was evaluated for the entire March 2010 month. So, the daily returns from 1st March, 2010 to 31st March, 2010 were calculated using the same logarithm method as proposed earlier. Now, the returns of the portfolio was calculated using the above given formulae depending on the cross hedging model. This process was again tedious as we had to manually drag the returns of Spots 1 with returns of its matched Futures. This process was instantaneously done by using Simulating Formula in MS Excel.
After finding the returns of the portfolio, the variance of these returns were calculated. The model which gave the minimum variance [Closest to zero] was adjudged as the best model for that particular spots. Hence, at the end of the day, we evaluated that which model suited most to a given spot.
Simulating Formulae in MS Excel: This is a very interesting technique which I accidently discovered while doing some experiments with MS Excel during the course of my internship. This technique has neither been discussed anywhere in any book or in any internet sources. Through this technique, we can simulate a desired formula in MS Excel and make it more dynamic. Macros are enabled in Excel but very few people are aware of writing the codes in VB. Moreover, why should one immediately rush to write a code when a problem can sometimes be solved in an easier way.
Earlier, I speculated that I may not be able to do my project in Excel because of huge amount of calculations. The formulae used in my project were not that simple that you write a formula in one cell and copy it, drag it or double click it to the others. Imagine a situation where you collect some data, say Adjusted Closing Price for thousands of companies for a period of say, ten years from Prowess database and you get around 10,000 blank cells having null values. You cant leave these cells as blank because the returns will give #Div error, regressions will not run and the correlations will be inaccurate. So, it is compulsory to replace it at least by the average of the adjusted closing
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price of that particular company. This cannot be done manually. Sometimes it may even lead to circular referencing in Excel.
Similarly think of an instance where you need to specify different range in a particular formula. As in this project, we need to use Slope function and specify X range and Y range. Sometimes the returns of Spot X were in A column and returns of Futures in Z column and sometimes in CZ column. Just imagine that how difficult it would have been to repeat this process for the entire 338 companies. Hence, if we can simulate a formula accordingly, then it would be like Five minutes to write a formula in a cell and five seconds to drag it.
Now, how to go about it? First write a formula in a general way in a particular cell. In this project we had to find the hedge ratio for cross hedging 3M India Ltd. with
JSWSTEEL. Returns of 3M India Ltd were calculated in Spots sheet from column number C2 to C632 and the corresponding returns of its match JSWSTEEL was given in Futures sheet column number AM2 to AM 632. So, the formula to be written here would have been =slope(Spots!C2:C632,Futures!AM2:AM632). This process had to be repeated for 338 spots for three different cross hedging models the fourth one had only ten companies and hence it was not required to simulate formula there. Now a new sheet named Colunm Index was created which had the corresponding column name A,B,C,D and so on for all the futures and spots. The indexing was done for Spots in this new sheet from A to C column and for Futures in D to F column. Now, depending on the spot and its best match, this formula will give the same result which we wanted:="=slope(Spots!"&VLOOKUP(A3,'Colunm Index'!A:C, Index'!A:C,3,0)&"2:"&VLOOKUP(A3,'Colunm Index'!D:F,3,0)&"2:" &
3,0)&"632"&",Futures!"&VLOOKUP(B3,'Colunm
VLOOKUP (B3,'Colunm Index'!D:F,3,0)&"632)" This is after all not that complex as it appears. It is just like Five minutes to write a formula and five seconds to drag a formula. Now we simply need to drag this formula. Here we will not get the slope because the Excel returns the formula in text format but the result is exactly same as =slope(Spots!C2:C632,Futures!AM2:AM632). Now we need to copy all the cells where the above formula was written and paste it as values [From Paste Special option] in the same location. Still, Excel does not recognize it as formula as it takes it as text. Now we simply need to 24 | P a g e
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simulate this formula. This can be instantaneously done by replacing all = with = by using the Replace option [Ctrl + P]. The moment = is replaced, it gets simulated. This acts as a positive catalyst and we get all the required values.
This simulation technique was also applied in my evaluation of cross hedging models. There we needed to write =Spots!$B2-$D2*futures!AE2 for first day for first spot and =Spots!$B3$D2*futures!AE3 for the second day for the same spot and so on. Similarly, for second spot the formula would have been =Spots!$C2-$D3*futures!W2 for the first day and =Spots!$C3$D3*futures!W3 for the second spot and so on. This formula needs to be written for 338 companies for day 1 to day 30. The simplest way was to write the following formula in one cell:="=Spots!$"&VLOOKUP($A2,'Colunm Index'!$A:$C,3,0) & F$1 & "-$C"&ROW(A2) & "*futures! "&VLOOKUP($B2,'Colunm Index'!$D:$F,3,0)&F$1 Now we simply need to drag it, paste as values and replace = with = and the formula gets life after simulation. This process was repeated for replacing all the blank cells by the average in the adjusted closing price sheet. This technique can be a great help for them who are still nave in writing Macros in Excel.
Results: After the evaluation, it was observed that for the 338 spots [excluding the 1 SSf + 1 IF model], we had 164 instances [48.5%] where the cross hedging using the Index future was the best alternative. For 97 instances, only 1 SSF using only Pearson correlation was the best hedging model. Augmentation of factors in the Mahalanobis metrics proved fruitful for 77 spots. For the 10 spots which fulfilled the prerequisite condition for 1 SSF + 1 IF model, 30% of the spots were best hedged using the 1 SSF based on Mahalanobis metrics whereas 20% performed best in the correlation 1 SSF model. Here also a majority of the spots [40%] showed best result if matched with the closest index future whereas only 10% had maximum efficiency when hedged with 1 SSF and 1 IF. The detailed results can be obtained from appendix V. It was seen that there were no spots which had best efficiency in 4th model Either 1 SSF or 1 IF. This was basically a flaw in this project. This model was basically a redundant model. However, the zero figures signified that there were no computational errors.
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Limitations and Recommendations:This model can be further built and the super computers and other technologies of D E Shaw & Co can be used to arrive at more meaningful results. Here, the four factors were augmented for the Mahalanobis metrics. We can have multiple models based on different other factors. Here, our portfolio is fixed but in real world, it is not the case. We should continuously examine the matched future and we can roll over and rebalance the portfolio on a weekly basis[5 days], fortnightly basis[10 days] and monthly basis[22 days]. Every time when we look to rebalance the portfolio, we will find the best match at that particular time and re-estimate the hedge ratio. If the matched future is same as the previous one then we simply need to estimate the new hedge ratio and examine the new basis risk involved. However, if the new match is different from the older match then the transactions involved will include Sell of the older match and purchase of the newer futures match. Hence, transactions cost and commissions involved should be taken into consideration and the various opportunity costs should be examined carefully. We can even narrow down this study further depending upon on the industry wise classification and see that for how many instances the spot and the matched future belong to the same industry. We can also have different strategies for different phases of economy Highly volatile, low volatile, bear and bull phase and so on. This way, the model can be built as a dynamic one and it can give the best match and different parameters on a real time basis. All these rebalancing and further classifications can be done in SAS or E-Views which will be covered in my MRP project.
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Appendix for Cross Hedging

I: Cross Hedging of 338 Spots with 68 most liquid futures [66 SSF+2 IF] using only Pearson correlation. Spots
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 3I Infotech Ltd. 3M India Ltd. A B G Shipyard Ltd. Aarti Industries Ltd. Abhishek Industries Ltd. Ackruti City Ltd. Adani Enterprises Ltd. Ador Welding Ltd. Advanta India Ltd. Aftek Ltd. Agro Tech Foods Ltd. Ajanta Pharma Ltd. Aksh Optifibre Ltd. Akzo Nobel India Td. Alembic Ltd. Alfa Laval (India) Ltd. Allcargo Global Logistics Ltd. Alok Industries Ltd. Amara Raja Batteries Ltd. Amtek Auto Ltd. Amtek India Ltd. Anant Raj Inds. Ltd. Andhra Sugars Ltd. Ansal Properties & Infrastructure Ltd. Apollo Hospitals Enterprise Ltd. Apollo Tyres Ltd. Aptech Ltd. Arvind Ltd. Asahi India Glass Ltd. Asian Electronics Ltd. Asian Paints Ltd. Astrazeneca Pharma India Ltd.
Only 1 SSF
TATASTEEL JSWSTEEL UNITECH CIPLA CENTURYTEX UNITECH AXISBANK KOTAKBANK UNITECH ABAN WIPRO WIPRO UNITECH WIPRO CENTURYTEX PNB ONGC UNITECH HCLTECH ABB UNITECH DLF WIPRO UNITECH INFOSYSTCH AXISBANK IFCI CENTURYTEX SIEMENS UNITECH INFOSYSTCH MARUTI
Only 1 IF
NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY
Either 1 IF or 1 SSF
TATASTEEL JSWSTEEL UNITECH CIPLA CENTURYTEX UNITECH AXISBANK KOTAKBANK UNITECH ABAN WIPRO WIPRO UNITECH WIPRO CENTURYTEX PNB ONGC UNITECH HCLTECH ABB UNITECH DLF WIPRO UNITECH INFOSYSTCH AXISBANK IFCI CENTURYTEX SIEMENS UNITECH INFOSYSTCH MARUTI
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33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73.
Atul Ltd. Automotive Axles Ltd. Avaya Globalconnect Ltd. Aventis Pharma Ltd. B A S F India Ltd. B L Kashyap & Sons Ltd. B O C India Ltd. B P L Ltd. Bajaj Auto Finance Ltd. Bajaj Holdings & Invst. Ltd. Balaji Telefilms Ltd. Ballarpur Industries Ltd. Balmer Lawrie & Co. Ltd. Banco Products (India) Ltd. Bannari Amman Sugars Ltd. Bata India Ltd. Berger Paints India Ltd. Bhansali Engineering Polymers Ltd. Binani Cement Ltd. Birla Corporation Ltd. Blue Dart Express Ltd. Blue Star Ltd. Bombay Dyeing & Mfg. Co. Ltd. Bosch Ltd. Britannia Industries Ltd. C M C Ltd. Cadila Healthcare Ltd. Can Fin Homes Ltd. Carborundum Universal Ltd. Carol Info Services Ltd. Castrol India Ltd. Century Enka Ltd. Century Plyboards (India) Ltd. Chemplast Sanmar Ltd. Cholamandalam D B S Finance Ltd. City Union Bank Ltd. Clariant Chemicals (India) Ltd. Colgate-Palmolive (India) Ltd. Container Corpn. Of India Ltd. Coromandel International Ltd. Corporation Bank
IDBI ICICIBANK TATAMOTORS MARUTI INFOSYSTCH ABAN WIPRO HDIL IDFC SIEMENS ABAN WELGUJ HDFCBANK PNB MARUTI SAIL M&M SIEMENS ICICIBANK BHEL JSWSTEEL WELGUJ TATASTEEL HCLTECH MARUTI M&M CIPLA M&M AXISBANK KOTAKBANK CIPLA WIPRO WELGUJ KOTAKBANK UNITECH JSWSTEEL WIPRO CIPLA INFOSYSTCH CIPLA HDFCBANK
BANKNIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY
IDBI ICICIBANK TATAMOTORS MARUTI INFOSYSTCH ABAN WIPRO HDIL IDFC SIEMENS ABAN WELGUJ HDFCBANK PNB MARUTI NIFTY M&M SIEMENS ICICIBANK BHEL JSWSTEEL WELGUJ TATASTEEL HCLTECH MARUTI M&M CIPLA M&M AXISBANK KOTAKBANK CIPLA WIPRO WELGUJ KOTAKBANK UNITECH JSWSTEEL WIPRO CIPLA INFOSYSTCH CIPLA HDFCBANK
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74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99.
Cosmo Films Ltd. Crisil Ltd. D C M Shriram Consolidated Ltd. D C W Ltd. D S Kulkarni Developers Ltd. Dalmia Cement (Bharat) Ltd. Deccan Chronicle Holdings Ltd. Deepak Fertilisers & Petrochemicals Corpn. Ltd. Dhampur Sugar Mills Ltd. Dishman Pharmaceuticals & Chemicals Ltd. Dredging Corpn. Of India Ltd. Dwarikesh Sugar Inds. Ltd. Dynamatic Technologies Ltd. E I D-Parry (India) Ltd. E I H Ltd. Eicher Motors Ltd. Elder Pharmaceuticals Ltd. Electrosteel Castings Ltd. Elgi Equipments Ltd. Engineers India Ltd. Entertainment Network (India) Ltd. Era Infra Engg. Ltd. Esab India Ltd. Escorts Ltd. Essar Oil Ltd. Essel Propack Ltd.
TATAPOWER WIPRO IVRCLINFRA KOTAKBANK UNITECH ABB TATAMOTORS CENTURYTEX M&M WELGUJ CENTURYTEX M&M IFCI CIPLA RNRL INFOSYSTCH HINDALCO KOTAKBANK HCLTECH BANKBARODA UNITECH WIPRO AXISBANK TATAMOTORS WELGUJ KOTAKBANK WIPRO WIPRO TATAMOTORS PNB SAIL HDIL CENTURYTEX KOTAKBANK ABB BANKBARODA WIPRO RELCAPITAL RNRL KOTAKBANK CENTURYTEX
NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY
TATAPOWER WIPRO IVRCLINFRA KOTAKBANK UNITECH ABB TATAMOTORS CENTURYTEX M&M WELGUJ CENTURYTEX M&M IFCI CIPLA RNRL INFOSYSTCH HINDALCO KOTAKBANK HCLTECH BANKBARODA UNITECH WIPRO AXISBANK TATAMOTORS WELGUJ KOTAKBANK WIPRO WIPRO TATAMOTORS PNB SAIL HDIL CENTURYTEX KOTAKBANK ABB BANKBARODA WIPRO RELCAPITAL RNRL KOTAKBANK CENTURYTEX
100. Everest Industries Ltd. 101. Exide Industries Ltd. 102. F A G Bearings India Ltd. 103. F D C Ltd. 104. Federal-Mogul Goetze (India) Ltd. 105. Finolex Cables Ltd. 106. Finolex Industries Ltd. 107. First Leasing Co. Of India Ltd. 108. Firstsource Solutions Ltd. 109. Fortis Healthcare Ltd. 110. Fresenius Kabi Oncology Ltd. 111. G H C L Ltd. 112. G T L Infrastructure Ltd. 113. G V K Power & Infrastructure Ltd. 114. Gammon India Ltd.
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115. Garden Silk Mills Ltd. 116. Gateway Distriparks Ltd. 117. Geojit B N P Paribas Financial Services Ltd. 118. Geometric Ltd. 119. Gillette India Ltd. 120. Gitanjali Gems Ltd. 121. Glaxosmithkline Consumer Healthcare Ltd. 122. Glenmark Pharmaceuticals Ltd. 123. Godfrey Phillips India Ltd. 124. Godrej Consumer Products Ltd. 125. Godrej Industries Ltd. 126. Gokaldas Exports Ltd. 127. Graphite India Ltd. 128. Great Offshore Ltd. 129. Greaves Cotton Ltd. 130. Gujarat Alkalies & Chemicals Ltd. 131. Gujarat Ambuja Exports Ltd. 132. Gujarat Fluorochemicals Ltd. 133. Gujarat Gas Co. Ltd. 134. Gujarat Industries Power Co. Ltd. 135. Gujarat Mineral Devp. Corpn. Ltd. 136. Gujarat N R E Coke Ltd. 137. Gujarat Narmada Valley Fertilizers Co. Ltd. 138. Gujarat State Fertilizers & Chemicals Ltd. 139. Gujarat State Petronet Ltd. 140. H C L Infosystems Ltd. 141. H E G Ltd. 142. H M T Ltd. 143. H S B C Investdirect (India) Ltd. 144. H S I L Ltd. 145. H T Media Ltd. 146. Harrisons Malayalam Ltd. 147. Havells India Ltd. 148. Heritage Foods (India) Ltd. 149. Hexaware Technologies Ltd. 150. Hikal Ltd. 151. Himachal Futuristic Communications Ltd. 152. Himatsingka Seide Ltd. 153. Hindustan Motors Ltd. 154. Hindustan Oil Exploration Co. Ltd. 155. Hindustan Zinc Ltd.
ONGC IDBI HDIL TATAMOTORS WIPRO ABAN CIPLA ABAN WIPRO CIPLA HDIL ABAN HCLTECH CENTURYTEX TATAMOTORS WELGUJ UNITECH RELCAPITAL PNB STER CENTURYTEX HINDALCO HDIL ICICIBANK WIPRO CENTURYTEX KOTAKBANK KOTAKBANK WIPRO SAIL CENTURYTEX WIPRO HINDALCO HINDALCO TATAMOTORS RANBAXY UNITECH DLF HDIL MARUTI WIPRO
BANKNIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY
ONGC IDBI HDIL TATAMOTORS WIPRO ABAN CIPLA ABAN WIPRO CIPLA HDIL ABAN HCLTECH CENTURYTEX TATAMOTORS WELGUJ UNITECH RELCAPITAL PNB NIFTY CENTURYTEX HINDALCO HDIL ICICIBANK WIPRO CENTURYTEX KOTAKBANK NIFTY WIPRO SAIL CENTURYTEX WIPRO HINDALCO HINDALCO TATAMOTORS RANBAXY UNITECH DLF HDIL MARUTI WIPRO
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156. Honeywell Automation India Ltd. 157. House Of Pearl Fashions Ltd. 158. I N G Vysya Bank Ltd. 159. Ibn18 Broadcast Ltd. 160. Ind-Swift Laboratories Ltd. 161. India Glycols Ltd. 162. Indiabulls Financial Services Ltd. 163. Indiabulls Real Estate Ltd. 164. Indo Rama Synthetics (India) Ltd. 165. Indraprastha Gas Ltd. 166. Indraprastha Medical Corpn. Ltd. 167. Indusind Bank Ltd. 168. Info Edge (India) Ltd. 169. Infotech Enterprises Ltd. 170. Ingersoll-Rand (India) Ltd. 171. Inox Leisure Ltd. 172. Ipca Laboratories Ltd. 173. Ispat Industries Ltd. 174. J B Chemicals & Pharmaceuticals Ltd. 175. J M Financial Ltd. 176. J S L Ltd. 177. Jagran Prakashan Ltd. 178. Jai Corp Ltd. 179. Jain Irrigation Systems Ltd. 180. Jammu & Kashmir Bank Ltd. 181. Jay Shree Tea & Inds. Ltd. 182. Jet Airways (India) Ltd. 183. Jindal Poly Films Ltd. 184. Jindal Saw Ltd. 185. Jindal South West Holdings Ltd. 186. Jubilant Organosys Ltd. 187. Jyoti Structures Ltd. 188. K C P Ltd. 189. K E C International Ltd. 190. K P I T Cummins Infosystems Ltd. 191. K S B Pumps Ltd. 192. K S Oils Ltd. 193. Kajaria Ceramics Ltd. 194. Kalpataru Power Transmission Ltd. 195. Kansai Nerolac Paints Ltd. 196. Karnataka Bank Ltd.
HDFCBANK DLF TATAMOTORS DLF HCLTECH ABAN UNITECH UNITECH CENTURYTEX BANKBARODA BHEL HDFCBANK CENTURYTEX HCLTECH CHAMBLFERT HDIL WIPRO RNRL SAIL RELCAPITAL CENTURYTEX SBIN DLF M&M ICICIBANK CIPLA CENTURYTEX CIPLA TATAMOTORS AXISBANK RANBAXY ICICIBANK CENTURYTEX ICICIBANK TATAMOTORS BHEL ICICIBANK CIPLA CENTURYTEX WIPRO HDIL
BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY
HDFCBANK DLF TATAMOTORS DLF BANKNIFTY ABAN UNITECH UNITECH CENTURYTEX BANKBARODA BHEL HDFCBANK CENTURYTEX HCLTECH CHAMBLFERT HDIL WIPRO RNRL SAIL RELCAPITAL CENTURYTEX BANKNIFTY DLF M&M ICICIBANK CIPLA CENTURYTEX CIPLA TATAMOTORS BANKNIFTY RANBAXY ICICIBANK CENTURYTEX NIFTY TATAMOTORS BHEL ICICIBANK CIPLA CENTURYTEX WIPRO HDIL
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197. Karur Vysya Bank Ltd. 198. Karuturi Global Ltd. 199. Kesoram Industries Ltd. 200. Kohinoor Foods Ltd. 201. Lakshmi Energy & Foods Ltd. 202. Lakshmi Machine Works Ltd. 203. Lakshmi Vilas Bank Ltd. 204. M R F Ltd. 205. Madras Cements Ltd. 206. Maharashtra Seamless Ltd. 207. Mahindra & Mahindra Financial Services Ltd. 208. Mahindra Lifespace Developers Ltd. 209. Mahindra Ugine Steel Co. Ltd. 210. Marico Ltd. 211. Mastek Ltd. 212. Max India Ltd. 213. Mcleod Russel India Ltd. 214. Mercator Lines Ltd. 215. Merck Ltd. 216. Mid-Day Multimedia Ltd. 217. Mindtree Ltd. 218. Mirc Electronics Ltd. 219. Mirza International Ltd. 220. Monnet Ispat & Energy Ltd. 221. Monsanto India Ltd. 222. Motherson Sumi Systems Ltd. 223. Motilal Oswal Financial Services Ltd. 224. Munjal Showa Ltd. 225. N I I T Ltd. 226. N R B Bearings Ltd. 227. National Fertilizers Ltd. 228. Nava Bharat Ventures Ltd. 229. Navneet Publications (India) Ltd. 230. Nelco Ltd. 231. New Delhi Television Ltd. 232. Nilkamal Ltd. 233. Nirma Ltd. 234. Noida Toll Bridge Co. Ltd. 235. Omax Autos Ltd. 236. Omaxe Ltd. 237. Oracle Financial Services Software Ltd.
JSWSTEEL WELGUJ GRASIM BHARTIARTL ABAN CENTURYTEX KOTAKBANK IDBI ABB KOTAKBANK JSWSTEEL LT CENTURYTEX PNB RANBAXY IDBI CIPLA LT PNB CENTURYTEX WIPRO KOTAKBANK KOTAKBANK WELGUJ TATAPOWER WIPRO KOTAKBANK M&M TATASTEEL ABB AXISBANK WIPRO AXISBANK ICICIBANK ABAN HINDALCO IDFC RNRL TATAMOTORS UNITECH WIPRO
BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY BANKNIFTY
JSWSTEEL WELGUJ GRASIM BHARTIARTL ABAN CENTURYTEX KOTAKBANK BANKNIFTY ABB KOTAKBANK JSWSTEEL LT CENTURYTEX PNB RANBAXY NIFTY CIPLA LT PNB CENTURYTEX WIPRO KOTAKBANK KOTAKBANK WELGUJ TATAPOWER WIPRO KOTAKBANK M&M TATASTEEL ABB AXISBANK WIPRO AXISBANK ICICIBANK ABAN HINDALCO BANKNIFTY RNRL NIFTY UNITECH WIPRO
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238. Orient Paper & Inds. Ltd. 239. Oriental Hotels Ltd. 240. Oswal Chemicals & Fertilizers Ltd. 241. P N B Gilts Ltd. 242. P S L Ltd. 243. P T C India Ltd. 244. P V P Ventures Ltd. 245. Panacea Biotec Ltd. 246. Paper Products Ltd. 247. Parsvnath Developers Ltd. 248. Peninsula Land Ltd. 249. Pfizer Ltd. 250. Phoenix Mills Ltd. 251. Pidilite Industries Ltd. 252. Piramal Healthcare Ltd. 253. Pricol Ltd. 254. Prism Cement Ltd. 255. Procter & Gamble Hygiene & Health Care Ltd. 256. Provogue (India) Ltd. 257. Puravankara Projects Ltd. 258. Radico Khaitan Ltd. 259. Rajesh Exports Ltd. 260. Rallis India Ltd. 261. Ramco Industries Ltd. 262. Ramco Systems Ltd. 263. Rashtriya Chemicals & Fertilizers Ltd. 264. Raymond Ltd. 265. Redington (India) Ltd. 266. Rei Agro Ltd. 267. Reliance Industrial Infrastructure Ltd. 268. Reliance Infrastructure Ltd. 269. Rico Auto Inds. Ltd. 270. Ruchi Soya Inds. Ltd. 271. S K F India Ltd. 272. S Kumars Nationwide Ltd. 273. S R E I Infrastructure Finance Ltd. 274. S R F Ltd. 275. Sakthi Sugars Ltd. 276. Saregama India Ltd. 277. Seamec Ltd. 278. Shanthi Gears Ltd.
GRASIM CENTURYTEX UNITECH KOTAKBANK ABAN KOTAKBANK UNITECH ABAN HDFCBANK DLF IFCI MARUTI CENTURYTEX TATAMOTORS WIPRO HINDALCO GRASIM CIPLA ABAN DLF GRASIM ICICIBANK CIPLA AXISBANK IVRCLINFRA AXISBANK CENTURYTEX HINDALCO SESAGOA CENTURYTEX ICICIBANK KOTAKBANK HINDALCO SAIL ABAN HDIL WIPRO HDFC DLF STER LT
NIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY NIFTY
GRASIM CENTURYTEX UNITECH KOTAKBANK ABAN KOTAKBANK UNITECH ABAN BANKNIFTY DLF IFCI MARUTI CENTURYTEX TATAMOTORS WIPRO HINDALCO GRASIM CIPLA ABAN DLF GRASIM ICICIBANK CIPLA BANKNIFTY IVRCLINFRA AXISBANK CENTURYTEX HINDALCO SESAGOA CENTURYTEX ICICIBANK KOTAKBANK HINDALCO SAIL ABAN HDIL WIPRO HDFC DLF BANKNIFTY LT
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Final Report.
IBS, Hyderabad.
279. Shasun Chemicals & Drugs Ltd. 280. Shopper'S Stop Ltd. 281. Shree Cement Ltd. 282. Shrenuj & Co. Ltd. 283. Shriram Transport Finance Co. Ltd. 284. Simplex Infrastructures Ltd. 285. Sintex Industries Ltd. 286. Sobha Developers Ltd. 287. Sona Koyo Steering Systems Ltd. 288. Sonata Software Ltd. 289. South Indian Bank Ltd. 290. State Trading Corpn. Of India Ltd. 291. Sterlite Technologies Ltd. 292. Strides Arcolab Ltd. 293. Sundaram Finance Ltd. 294. Sundram Fasteners Ltd. 295. Supreme Industries Ltd. 296. Supreme Petrochem Ltd. 297. Surya Roshni Ltd. 298. Swaraj Engines Ltd. 299. T V S Motor Co. Ltd. 300. T V Today Network Ltd. 301. Taj G V K Hotels & Resorts Ltd. 302. Tamil Nadu Newsprint & Papers Ltd. 303. Tamilnadu Petroproducts Ltd. 304. Tata Coffee Ltd. 305. Tata Communications Ltd. 306. Tata Elxsi Ltd. 307. Tata Investment Corpn. Ltd. 308. Tata Metaliks Ltd. 309. Tata Sponge Iron Ltd. 310. Television Eighteen India Ltd. 311. Thermax Ltd. 312. Thomas Cook (India) Ltd. 313. Torrent Pharmaceuticals Ltd. 314. Torrent Power Ltd. 315. Tourism Finance Corpn. Of India Ltd. 316. Trent Ltd. 317. Tube Investments Of India Ltd. 318. U T V Software Communications Ltd. 319. Uco Bank
CENTURYTEX HINDALCO M&M RELCAPITAL WIPRO WELGUJ ABAN DLF CENTURYTEX TATAMOTORS AXISBANK SAIL WIPRO TATAMOTORS AXISBANK TATAMOTORS HDFCBANK SAIL TATAMOTORS AXISBANK HDFCBANK KOTAKBANK TATAMOTORS LT KOTAKBANK WIPRO GMRINFRA TATAMOTORS TATASTEEL TATASTEEL HCLTECH RCOM SAIL WELGUJ INFOSYSTCH PNB KOTAKBANK WIPRO AXISBANK WELGUJ SBIN
NIFTY NIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY
CENTURYTEX HINDALCO M&M RELCAPITAL WIPRO WELGUJ ABAN DLF CENTURYTEX TATAMOTORS BANKNIFTY SAIL WIPRO TATAMOTORS AXISBANK BANKNIFTY HDFCBANK BANKNIFTY TATAMOTORS AXISBANK HDFCBANK KOTAKBANK TATAMOTORS LT KOTAKBANK WIPRO GMRINFRA TATAMOTORS TATASTEEL TATASTEEL HCLTECH RCOM SAIL WELGUJ INFOSYSTCH PNB KOTAKBANK WIPRO BANKNIFTY WELGUJ BANKNIFTY
34 | P a g e
Final Report.
IBS, Hyderabad.
320. Uflex Ltd. 321. Unichem Laboratories Ltd. 322. Unity Infraprojects Ltd. 323. Usha Martin Ltd. 324. Uttam Galva Steels Ltd. 325. V I P Industries Ltd. 326. V S T Industries Ltd. 327. Vardhman Textiles Ltd. 328. Varun Shipping Co. Ltd. 329. Venky'S (India) Ltd. 330. Vesuvius India Ltd. 331. Videocon Industries Ltd. 332. Vishal Retail Ltd. 333. West Coast Paper Mills Ltd. 334. Wockhardt Ltd. 335. Wyeth Ltd. 336. Zensar Technologies Ltd. 337. Zodiac Clothing Co. Ltd. 338. Zuari Industries Ltd.
LT INFOSYSTCH ICICIBANK HINDALCO PNB WIPRO M&M WIPRO HDIL WIPRO HINDALCO HDIL ABAN CENTURYTEX DLF PNB WIPRO WELGUJ WIPRO
NIFTY BANKNIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY NIFTY NIFTY NIFTY NIFTY NIFTY BANKNIFTY BANKNIFTY NIFTY BANKNIFTY
LT INFOSYSTCH ICICIBANK HINDALCO PNB WIPRO M&M WIPRO HDIL WIPRO HINDALCO HDIL ABAN CENTURYTEX DLF PNB WIPRO WELGUJ WIPRO
II: Cross hedging using Mahalanobis distance [Using only 1 SSF] Spots
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 3I Infotech Ltd. 3M India Ltd. A B G Shipyard Ltd. Aarti Industries Ltd. Abhishek Industries Ltd. Ackruti City Ltd. Adani Enterprises Ltd. Ador Welding Ltd. Advanta India Ltd. Aftek Ltd. Agro Tech Foods Ltd. Ajanta Pharma Ltd. Aksh Optifibre Ltd. Akzo Nobel India Td. Alembic Ltd. Alfa Laval (India) Ltd. Allcargo Global Logistics Ltd.
Mahalanobis Distance
1.070675 0.785686 1.010789 1.905286 2.454964 2.902429 0.886128 1.099898 1.028294 11.0229 0.497041 1.447566 2.225348 1.64678 0.843325 1.129844 1.764433
Best Match
IDEA HCLTECH IDEA BPCL RCOM ABB AXISBANK GRASIM ABB RCOM M&M BPCL RCOM ACC GRASIM CIPLA ACC
Hedge Ratio
0.502403 0.249148 0.471756 0.211932 0.319432 0.42623 0.438725 0.343904 0.313032 0.41118 0.443139 0.292208 0.367649 0.098376 0.406591 0.168269 0.152594
Intercept value
-0.00053 0.000137 -0.0011 0.000517 -2.2E-05 -0.00039 0.000242 -0.00045 -0.00101 -0.00148 0.000585 0.000448 -0.00123 0.000334 -0.00083 0.000296 -1.7E-05
35 | P a g e
Final Report.
IBS, Hyderabad.
18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58.
Alok Industries Ltd. Amara Raja Batteries Ltd. Amtek Auto Ltd. Amtek India Ltd. Anant Raj Inds. Ltd. Andhra Sugars Ltd. Ansal Properties & Infrastructure Ltd. Apollo Hospitals Enterprise Ltd. Apollo Tyres Ltd. Aptech Ltd. Arvind Ltd. Asahi India Glass Ltd. Asian Electronics Ltd. Asian Paints Ltd. Astrazeneca Pharma India Ltd. Atul Ltd. Automotive Axles Ltd. Avaya Globalconnect Ltd. Aventis Pharma Ltd. B A S F India Ltd. B L Kashyap & Sons Ltd. B O C India Ltd. B P L Ltd. Bajaj Auto Finance Ltd. Bajaj Holdings & Invst. Ltd. Balaji Telefilms Ltd. Ballarpur Industries Ltd. Balmer Lawrie & Co. Ltd. Banco Products (India) Ltd. Bannari Amman Sugars Ltd. Bata India Ltd. Berger Paints India Ltd. Bhansali Engineering Polymers Ltd. Binani Cement Ltd. Birla Corporation Ltd. Blue Dart Express Ltd. Blue Star Ltd. Bombay Dyeing & Mfg. Co. Ltd. Bosch Ltd. Britannia Industries Ltd. C M C Ltd.
1.330574 0.669736 1.896284 2.777435 0.876492 2.108221 1.286541 1.04225 1.103773 0.703172 1.070858 1.340036 4.340724 0.789907 0.746386 2.939907 1.161914 1.353143 0.810348 0.764237 0.662039 1.510323 1.005312 1.932726 1.801275 2.106917 2.171861 0.799556 0.839092 0.983072 0.986641 1.042317 1.5361 0.724134 0.944983 1.033614 1.057102 1.100925 1.01901 1.179792 0.497889
RCOM TATAMOTORS IDEA RCOM HINDALCO BAJAJHIND RCOM CIPLA TATAMOTORS RELCAPITAL RCOM ABB RCOM SUNPHARMA CIPLA IDBI GAIL GRASIM CIPLA CIPLA IDEA CAIRN CENTURYTEX BAJAJHIND GRASIM RCOM HINDALCO TATAMOTORS CIPLA BPCL HCLTECH HCLTECH ACC GRASIM GRASIM RANBAXY RANBAXY SESAGOA HCLTECH CIPLA HCLTECH
0.538442 0.427652 0.306162 0.267886 0.541557 0.412143 0.695654 0.233911 0.34433 0.657278 0.587572 0.323372 0.615844 0.097426 0.408904 0.400758 0.405051 0.444866 0.207747 0.426965 0.38255 0.224875 0.429599 0.32716 0.323378 0.382241 0.330666 0.371638 0.685651 0.235129 0.375979 0.198435 0.227357 0.49591 0.562466 0.197663 0.22249 0.052536 0.123036 -0.00463 0.380728
-0.00035 0.000932 -0.00079 -0.00102 -0.00164 0.000586 -0.00065 0.000372 0.000763 -0.00059 0.000393 -0.00078 -0.00305 0.001028 0.000355 0.000348 -0.00071 -0.00034 0.000368 0.000228 -0.00163 0.000368 -0.00031 -0.00024 -0.00237 -0.00204 4.52E-05 0.000555 0.001138 0.000705 0.000275 7.58E-05 -0.00074 -0.00019 0.000365 0.000175 0.00019 -0.00021 9.43E-05 0.000297 0.000113
36 | P a g e
Final Report.
IBS, Hyderabad.
59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99.
Cadila Healthcare Ltd. Can Fin Homes Ltd. Carborundum Universal Ltd. Carol Info Services Ltd. Castrol India Ltd. Century Enka Ltd. Century Plyboards (India) Ltd. Chemplast Sanmar Ltd. Cholamandalam D B S Finance Ltd. City Union Bank Ltd. Clariant Chemicals (India) Ltd. Colgate-Palmolive (India) Ltd. Container Corpn. Of India Ltd. Coromandel International Ltd. Corporation Bank Cosmo Films Ltd. Crisil Ltd. D C M Shriram Consolidated Ltd. D C W Ltd. D S Kulkarni Developers Ltd. Dalmia Cement (Bharat) Ltd. Deccan Chronicle Holdings Ltd. Deepak Fertilisers & Petrochemicals Corpn. Ltd. Dhampur Sugar Mills Ltd. Dishman Pharmaceuticals & Chemicals Ltd. Dredging Corpn. Of India Ltd. Dwarikesh Sugar Inds. Ltd. Dynamatic Technologies Ltd. E I D-Parry (India) Ltd. E I H Ltd. Eicher Motors Ltd. Elder Pharmaceuticals Ltd. Electrosteel Castings Ltd. Elgi Equipments Ltd. Engineers India Ltd. Entertainment Network (India) Ltd. Era Infra Engg. Ltd. Esab India Ltd. Escorts Ltd. Essar Oil Ltd. Essel Propack Ltd.
0.594536 3.882277 1.146929 4.800066 0.585298 1.280723 1.297738 0.902746 1.141116 1.303506 0.599215 1.075426 0.598205 0.842824 1.21113 2.303068 0.566398 2.225459 0.70288 5.797123 1.19954 0.694547 1.189375 2.514096 1.05918 1.572171 2.516399 0.615264 0.758109 2.078158 0.572155 2.558534 1.447844 0.856495 0.989264 0.818244 0.706373 0.529663 0.555083 1.290136 1.99014
CIPLA RCOM ACC RCOM CIPLA BPCL RANBAXY SIEMENS IDEA BAJAJHIND CIPLA CIPLA CIPLA M&M BAJAJHIND BAJAJHIND HCLTECH RCOM BAJAJHIND RCOM GRASIM IDFC BAJAJHIND IDBI RANBAXY GRASIM BAJAJHIND ABB CIPLA GAIL HCLTECH GRASIM BAJAJHIND ACC M&M ABB HCLTECH HCLTECH IDBI RNRL IDBI
0.274925 0.185601 0.328781 0.223496 0.234176 0.325292 0.284925 0.201083 0.520297 0.264081 0.495811 0.208299 0.17083 0.40266 0.189865 0.252308 0.125668 0.425756 0.346075 0.435711 0.674698 0.436734 0.324188 0.378691 0.204794 0.585171 0.362886 0.373518 0.470125 0.27638 0.265749 0.119197 0.368977 0.371727 0.412841 0.622187 0.218016 0.196818 0.689174 0.659787 0.423043
0.001306 0.000992 0.000104 -1.5E-05 0.001297 0.000794 -0.0002 0.000218 -0.00066 0.000794 0.00038 0.000632 0.000147 0.00137 0.000207 0.000401 0.000481 0.000632 0.000127 -0.00143 -0.00071 -0.00058 -0.00019 0.000942 -0.00061 0.000171 0.000999 -0.00031 0.000918 -6.1E-05 0.00024 -0.00026 -0.00024 0.000524 0.001815 -0.00087 0.00096 0.000293 0.000305 0.001834 -0.0004
37 | P a g e
Final Report.
IBS, Hyderabad.
100. Everest Industries Ltd. 101. Exide Industries Ltd. 102. F A G Bearings India Ltd. 103. F D C Ltd. 104. Federal-Mogul Goetze (India) Ltd. 105. Finolex Cables Ltd. 106. Finolex Industries Ltd. 107. First Leasing Co. Of India Ltd. 108. Firstsource Solutions Ltd. 109. Fortis Healthcare Ltd. 110. Fresenius Kabi Oncology Ltd. 111. G H C L Ltd. 112. G T L Infrastructure Ltd. 113. G V K Power & Infrastructure Ltd. 114. Gammon India Ltd. 115. Garden Silk Mills Ltd. 116. Gateway Distriparks Ltd. 117. Geojit B N P Paribas Financial Services Ltd. 118. Geometric Ltd. 119. Gillette India Ltd. 120. Gitanjali Gems Ltd. 121. Glaxosmithkline Consumer Healthcare Ltd. 122. Glenmark Pharmaceuticals Ltd. 123. Godfrey Phillips India Ltd. 124. Godrej Consumer Products Ltd. 125. Godrej Industries Ltd. 126. Gokaldas Exports Ltd. 127. Graphite India Ltd. 128. Great Offshore Ltd. 129. Greaves Cotton Ltd. 130. Gujarat Alkalies & Chemicals Ltd. 131. Gujarat Ambuja Exports Ltd. 132. Gujarat Fluorochemicals Ltd. 133. Gujarat Gas Co. Ltd. 134. Gujarat Industries Power Co. Ltd. 135. Gujarat Mineral Devp. Corpn. Ltd. 136. Gujarat N R E Coke Ltd. 137. Gujarat Narmada Valley Fertilizers Co. Ltd. 138. Gujarat State Fertilizers & Chemicals Ltd. 139. Gujarat State Petronet Ltd. 140. H C L Infosystems Ltd.
1.023614 0.550568 0.646486 0.804102 0.744921 1.738938 1.186225 3.847176 1.166999 0.825366 0.562652 1.363015 2.106433 0.580675 0.462676 3.625982 0.754032 1.291554 0.639071 0.928494 2.521458 0.824679 1.165953 0.922152 1.050165 0.705791 2.102018 1.521263 0.733523 0.759141 1.470077 1.87739 1.407018 0.777226 1.131013 0.470733 0.837576 1.509377 1.394296 0.642271 1.607257
BPCL HCLTECH GRASIM CIPLA ACC GRASIM GRASIM RCOM IDEA MARUTI HCLTECH RCOM ABB CENTURYTEX IDEA RCOM TATAMOTORS GAIL TATAMOTORS CIPLA RCOM CIPLA RANBAXY HCLTECH CIPLA RNRL IDEA HINDALCO GRASIM TATAMOTORS RCOM RCOM IDEA CIPLA GRASIM CENTURYTEX JSWSTEEL RCOM IDBI HCLTECH GRASIM
0.482234 0.211421 0.254746 0.480216 0.495376 0.415757 0.566385 0.298373 0.543833 0.405044 0.343989 0.428951 0.411866 0.585 0.302009 0.317342 0.390355 0.404701 0.409602 0.302526 0.463287 0.260208 0.315445 0.213204 0.142176 0.414829 0.402683 0.357218 0.468203 0.455632 0.428434 0.349122 0.474754 0.254336 0.498922 0.52156 0.419035 0.405297 0.400166 0.395092 0.274308
0.000322 0.000802 -0.00015 0.000959 -0.00017 -0.00037 -0.00032 0.00084 -0.00095 0.000761 0.00062 -0.0011 0.000591 -0.00016 -0.00091 0.000686 -9.9E-05 -0.00052 -0.00065 0.000456 -0.00065 0.001157 -0.00092 0.000274 0.000933 6.76E-05 -0.00025 0.000573 -0.00088 -0.00061 0.00075 -0.0004 -0.00052 0.000493 0.000442 0.000697 7.82E-06 0.000309 -0.00026 0.000434 -0.00087
38 | P a g e
Final Report.
IBS, Hyderabad.
141. H E G Ltd. 142. H M T Ltd. 143. H S B C Investdirect (India) Ltd. 144. H S I L Ltd. 145. H T Media Ltd. 146. Harrisons Malayalam Ltd. 147. Havells India Ltd. 148. Heritage Foods (India) Ltd. 149. Hexaware Technologies Ltd. 150. Hikal Ltd. 151. Himachal Futuristic Communications Ltd. 152. Himatsingka Seide Ltd. 153. Hindustan Motors Ltd. 154. Hindustan Oil Exploration Co. Ltd. 155. Hindustan Zinc Ltd. 156. Honeywell Automation India Ltd. 157. House Of Pearl Fashions Ltd. 158. I N G Vysya Bank Ltd. 159. Ibn18 Broadcast Ltd. 160. Ind-Swift Laboratories Ltd. 161. India Glycols Ltd. 162. Indiabulls Financial Services Ltd. 163. Indiabulls Real Estate Ltd. 164. Indo Rama Synthetics (India) Ltd. 165. Indraprastha Gas Ltd. 166. Indraprastha Medical Corpn. Ltd. 167. Indusind Bank Ltd. 168. Info Edge (India) Ltd. 169. Infotech Enterprises Ltd. 170. Ingersoll-Rand (India) Ltd. 171. Inox Leisure Ltd. 172. Ipca Laboratories Ltd. 173. Ispat Industries Ltd. 174. J B Chemicals & Pharmaceuticals Ltd. 175. J M Financial Ltd. 176. J S L Ltd. 177. Jagran Prakashan Ltd. 178. Jai Corp Ltd. 179. Jain Irrigation Systems Ltd. 180. Jammu & Kashmir Bank Ltd. 181. Jay Shree Tea & Inds. Ltd.
0.871994 0.948991 0.932798 0.891103 0.754397 1.010939 0.737238 1.436706 1.633063 1.238618 0.810269 3.237375 0.887084 1.122866 0.659652 0.591578 2.922013 1.292558 0.898562 3.122498 1.737403 1.330802 0.715691 1.436335 0.802427 0.818287 0.837894 1.667611 0.94341 2.39479 0.865748 0.684285 1.662618 1.939668 0.652111 1.139007 0.906501 0.397038 0.541361 2.093675 0.731774
GRASIM KOTAKBANK TATAPOWER GRASIM ABB BANKBARODA ABB RANBAXY GRASIM RANBAXY RNRL RCOM RNRL M&M AXISBANK HCLTECH RCOM TATAMOTORS ABB RCOM RCOM RCOM IFCI GRASIM CIPLA ACC JSWSTEEL RANBAXY TATAMOTORS CHAMBLFERT IDEA CIPLA RNRL IDBI IDEA HINDALCO HCLTECH IDEA HCLTECH BAJAJHIND BANKBARODA
0.429912 0.471196 0.395644 0.554114 0.348391 0.549625 0.50596 0.218527 0.396639 0.391091 0.342763 0.245437 0.391775 0.610487 0.348465 0.265812 0.366731 0.336171 0.521635 0.386977 0.460125 0.466397 0.596547 0.497627 0.245568 0.273717 0.422317 0.227031 0.275667 0.250243 0.445765 0.449692 0.587335 0.467931 0.378512 0.50775 0.279408 0.323432 0.174341 0.189778 0.451823
0.000794 0.000636 0.000107 9.11E-05 -0.00037 0.000207 0.000452 -0.00044 -0.00088 -0.0005 -0.00092 -0.00106 -0.00052 0.00112 0.000246 0.000508 -0.0013 -1.7E-05 -0.00058 0.00115 -0.00017 -0.00205 -0.00183 -0.00076 0.000423 0.000132 0.001165 -0.00036 0.000503 9.99E-05 -0.00026 0.000518 -0.00052 8.51E-05 -0.00052 -0.0008 3.92E-05 -0.00164 0.000634 -0.00026 0.001378
39 | P a g e
Final Report.
IBS, Hyderabad.
182. Jet Airways (India) Ltd. 183. Jindal Poly Films Ltd. 184. Jindal Saw Ltd. 185. Jindal South West Holdings Ltd. 186. Jubilant Organosys Ltd. 187. Jyoti Structures Ltd. 188. K C P Ltd. 189. K E C International Ltd. 190. K P I T Cummins Infosystems Ltd. 191. K S B Pumps Ltd. 192. K S Oils Ltd. 193. Kajaria Ceramics Ltd. 194. Kalpataru Power Transmission Ltd. 195. Kansai Nerolac Paints Ltd. 196. Karnataka Bank Ltd. 197. Karur Vysya Bank Ltd. 198. Karuturi Global Ltd. 199. Kesoram Industries Ltd. 200. Kohinoor Foods Ltd. 201. Lakshmi Energy & Foods Ltd. 202. Lakshmi Machine Works Ltd. 203. Lakshmi Vilas Bank Ltd. 204. M R F Ltd. 205. Madras Cements Ltd. 206. Maharashtra Seamless Ltd. 207. Mahindra & Mahindra Financial Services Ltd. 208. Mahindra Lifespace Developers Ltd. 209. Mahindra Ugine Steel Co. Ltd. 210. Marico Ltd. 211. Mastek Ltd. 212. Max India Ltd. 213. Mcleod Russel India Ltd. 214. Mercator Lines Ltd. 215. Merck Ltd. 216. Mid-Day Multimedia Ltd. 217. Mindtree Ltd. 218. Mirc Electronics Ltd. 219. Mirza International Ltd. 220. Monnet Ispat & Energy Ltd. 221. Monsanto India Ltd. 222. Motherson Sumi Systems Ltd.
0.563889 2.42538 0.797789 0.991991 0.832343 0.301892 0.795919 0.552749 0.647947 0.51849 0.830222 0.925925 0.673852 0.95401 2.301011 1.681859 1.173369 1.344024 3.730231 2.739199 0.604291 1.884894 0.751672 0.696528 0.730104 1.908261 0.527406 1.153354 0.756438 0.958128 0.792829 0.837689 0.708143 1.287526 0.84317 1.035754 1.488377 2.20444 1.534823 1.96012 0.501216
SIEMENS BPCL TATAMOTORS JSWSTEEL RANBAXY CENTURYTEX IDEA ABB HCLTECH ACC TATAMOTORS CIPLA ACC CIPLA BAJAJHIND GRASIM GAIL IDBI RCOM IDEA GRASIM BAJAJHIND GRASIM GRASIM GRASIM RANBAXY IDEA HINDALCO CIPLA RANBAXY GRASIM M&M IFCI CIPLA IDBI CIPLA GRASIM BAJAJHIND HINDALCO TATAPOWER HCLTECH
0.306334 0.231168 0.439955 0.667303 0.225166 0.451894 0.464659 0.505901 0.492511 0.336314 0.406557 0.393907 0.267935 0.37382 0.250012 0.298898 0.33643 0.45098 0.159764 0.32339 0.532804 0.288187 0.413532 0.516868 0.555613 0.123789 0.477203 0.500047 0.256494 0.375461 0.382051 0.489893 0.503957 0.205033 0.482969 0.333413 0.453424 0.261229 0.335583 0.274557 0.215715
-0.00105 0.00063 0.000911 0.001805 3.47E-05 -0.00031 0.000242 0.000254 -0.00029 -8.8E-05 -2.8E-06 0.000846 -0.00075 0.000168 -0.00126 0.000418 -0.00049 -0.00062 0.000369 -0.0004 -0.00062 -7E-06 0.000924 -0.00084 -0.00055 0.000604 -9.7E-05 -0.00075 0.000636 -0.00013 -0.0002 0.002023 -0.00024 0.000581 -0.00117 -0.00014 -0.00031 -0.00069 -0.00011 0.00026 0.000237
40 | P a g e
Final Report.
IBS, Hyderabad.
223. Motilal Oswal Financial Services Ltd. 224. Munjal Showa Ltd. 225. N I I T Ltd. 226. N R B Bearings Ltd. 227. National Fertilizers Ltd. 228. Nava Bharat Ventures Ltd. 229. Navneet Publications (India) Ltd. 230. Nelco Ltd. 231. New Delhi Television Ltd. 232. Nilkamal Ltd. 233. Nirma Ltd. 234. Noida Toll Bridge Co. Ltd. 235. Omax Autos Ltd. 236. Omaxe Ltd. 237. Oracle Financial Services Software Ltd. 238. Orient Paper & Inds. Ltd. 239. Oriental Hotels Ltd. 240. Oswal Chemicals & Fertilizers Ltd. 241. P N B Gilts Ltd. 242. P S L Ltd. 243. P T C India Ltd. 244. P V P Ventures Ltd. 245. Panacea Biotec Ltd. 246. Paper Products Ltd. 247. Parsvnath Developers Ltd. 248. Peninsula Land Ltd. 249. Pfizer Ltd. 250. Phoenix Mills Ltd. 251. Pidilite Industries Ltd. 252. Piramal Healthcare Ltd. 253. Pricol Ltd. 254. Prism Cement Ltd. 255. Procter & Gamble Hygiene & Health Care Ltd. 256. Provogue (India) Ltd. 257. Puravankara Projects Ltd. 258. Radico Khaitan Ltd. 259. Rajesh Exports Ltd. 260. Rallis India Ltd. 261. Ramco Industries Ltd. 262. Ramco Systems Ltd. 263. Rashtriya Chemicals & Fertilizers Ltd.
0.816127 1.318012 0.879075 1.630481 1.175729 0.622527 0.847457 0.880168 0.696911 1.744593 2.366815 1.195676 2.585877 1.166783 0.382828 1.298837 2.288673 12.26978 4.744121 2.378899 0.927469 1.078054 1.141592 1.222569 0.706745 0.54793 0.939687 0.772936 0.66463 0.439132 1.43974 0.86035 0.977129 1.684792 0.481619 1.165455 0.772984 0.709145 1.255522 1.834936 0.992367
IDFC BPCL GRASIM GRASIM AXISBANK PNB HCLTECH KOTAKBANK SESAGOA GRASIM BAJAJHIND GRASIM IDBI IDEA M&M GRASIM GRASIM RCOM RCOM RCOM GRASIM IDEA GAIL BPCL IDBI PUNJLLOYD CIPLA GRASIM HCLTECH HCLTECH GRASIM IDFC SUNPHARMA RCOM SUZLON ACC TATAMOTORS M&M GRASIM BAJAJHIND JSWSTEEL
0.40587 0.295191 0.511839 0.506029 0.487916 0.485114 0.276975 0.441329 0.043313 0.615558 0.240224 0.553021 0.396501 0.555295 0.423698 0.478749 0.358523 0.657513 0.20793 0.351874 0.473407 0.51825 0.161322 0.200939 0.790771 0.603508 0.238278 0.53759 0.27659 0.210841 0.579491 0.471062 0.127992 0.200226 0.240698 0.340831 0.508451 0.275548 0.433359 0.299214 0.414396
-0.00063 -0.00017 -0.00095 -0.0005 0.001145 -8E-05 0.000503 -7.1E-05 -0.00177 0.000867 8.86E-05 0.000122 -0.00038 -0.00134 6.88E-05 -0.00011 -7.9E-05 5.8E-05 0.000505 -0.00082 0.000479 -0.00227 -0.00152 -7.6E-05 -0.00163 5.96E-05 0.000246 -0.00109 0.000334 0.000583 -0.00013 -0.00043 0.001565 -0.00181 -0.00141 -0.00082 -0.00057 0.001745 0.000404 -0.00076 0.000612
41 | P a g e
Final Report.
IBS, Hyderabad.
264. Raymond Ltd. 265. Redington (India) Ltd. 266. Rei Agro Ltd. 267. Reliance Industrial Infrastructure Ltd. 268. Reliance Infrastructure Ltd. 269. Rico Auto Inds. Ltd. 270. Ruchi Soya Inds. Ltd. 271. S K F India Ltd. 272. S Kumars Nationwide Ltd. 273. S R E I Infrastructure Finance Ltd. 274. S R F Ltd. 275. Sakthi Sugars Ltd. 276. Saregama India Ltd. 277. Seamec Ltd. 278. Shanthi Gears Ltd. 279. Shasun Chemicals & Drugs Ltd. 280. Shopper'S Stop Ltd. 281. Shree Cement Ltd. 282. Shrenuj & Co. Ltd. 283. Shriram Transport Finance Co. Ltd. 284. Simplex Infrastructures Ltd. 285. Sintex Industries Ltd. 286. Sobha Developers Ltd. 287. Sona Koyo Steering Systems Ltd. 288. Sonata Software Ltd. 289. South Indian Bank Ltd. 290. State Trading Corpn. Of India Ltd. 291. Sterlite Technologies Ltd. 292. Strides Arcolab Ltd. 293. Sundaram Finance Ltd. 294. Sundram Fasteners Ltd. 295. Supreme Industries Ltd. 296. Supreme Petrochem Ltd. 297. Surya Roshni Ltd. 298. Swaraj Engines Ltd. 299. T V S Motor Co. Ltd. 300. T V Today Network Ltd. 301. Taj G V K Hotels & Resorts Ltd. 302. Tamil Nadu Newsprint & Papers Ltd. 303. Tamilnadu Petroproducts Ltd. 304. Tata Coffee Ltd.
1.423328 0.725166 2.109388 0.665535 0.675708 1.678889 0.663313 0.801673 0.383571 0.9951 1.067758 2.822041 1.11285 0.715062 1.235184 1.63119 0.857035 0.643159 1.480594 0.812624 0.243834 0.775086 0.471355 0.666745 0.750478 1.26406 0.780329 0.829303 0.874287 1.641511 0.779842 0.74614 0.973861 1.222873 1.03212 0.776964 0.611539 0.624367 2.870639 4.433429 1.197879
GRASIM RANBAXY IDEA RNRL PUNJLLOYD BAJAJHIND TATAMOTORS ACC PUNJLLOYD HINDALCO BAJAJHIND BAJAJHIND IDEA BAJAJHIND IDEA IDEA RANBAXY HCLTECH IDEA HCLTECH WELGUJ IDEA IDEA GRASIM ACC GRASIM KOTAKBANK JSWSTEEL HCLTECH GRASIM ACC HCLTECH TATAMOTORS BAJAJHIND MARUTI ACC GRASIM HCLTECH RCOM RCOM BPCL
0.375299 0.379596 0.280073 0.443055 0.788546 0.338703 0.506397 0.373726 0.554281 0.520149 0.321384 0.505546 0.32294 0.30328 0.257857 0.349406 0.214806 0.216036 0.427077 0.137265 0.422548 0.469686 0.456043 0.487612 0.496958 0.464994 0.443719 0.591038 0.477864 0.33541 0.399451 0.223506 0.400569 0.302476 0.362087 0.497367 0.530405 0.285636 0.205058 0.285104 0.17488
-0.00058 -0.00043 0.000287 -0.00095 0.000191 -0.00057 0.000642 -5.5E-05 -0.00103 -0.00092 0.000393 -0.00034 -0.00209 3.81E-05 -0.00078 -0.00093 -0.00066 0.000369 0.000192 0.00138 0.000155 -0.00011 -0.00153 -0.00029 0.000404 0.000312 0.001716 0.000758 -2E-05 0.000983 0.000238 0.000984 0.000496 0.000386 0.000625 0.000352 -0.00025 8.55E-05 0.000176 0.00065 0.000377
42 | P a g e
Final Report.
IBS, Hyderabad.
305. Tata Communications Ltd. 306. Tata Elxsi Ltd. 307. Tata Investment Corpn. Ltd. 308. Tata Metaliks Ltd. 309. Tata Sponge Iron Ltd. 310. Television Eighteen India Ltd. 311. Thermax Ltd. 312. Thomas Cook (India) Ltd. 313. Torrent Pharmaceuticals Ltd. 314. Torrent Power Ltd. 315. Tourism Finance Corpn. Of India Ltd. 316. Trent Ltd. 317. Tube Investments Of India Ltd. 318. U T V Software Communications Ltd. 319. Uco Bank 320. Uflex Ltd. 321. Unichem Laboratories Ltd. 322. Unity Infraprojects Ltd. 323. Usha Martin Ltd. 324. Uttam Galva Steels Ltd. 325. V I P Industries Ltd. 326. V S T Industries Ltd. 327. Vardhman Textiles Ltd. 328. Varun Shipping Co. Ltd. 329. Venky'S (India) Ltd. 330. Vesuvius India Ltd. 331. Videocon Industries Ltd. 332. Vishal Retail Ltd. 333. West Coast Paper Mills Ltd. 334. Wockhardt Ltd. 335. Wyeth Ltd. 336. Zensar Technologies Ltd. 337. Zodiac Clothing Co. Ltd. 338. Zuari Industries Ltd.
2.347389 0.649813 1.335541 0.602489 1.226483 0.664109 0.620631 1.211082 0.571255 0.588613 2.020663 1.15372 0.949337 1.80262 1.20196 2.265808 0.943445 7.072798 0.395129 0.579537 0.761222 0.927827 1.267784 2.514003 1.30686 0.810762 1.555063 5.5268 2.684 0.976295 0.809871 0.751525 1.338041 0.555473
IDEA HCLTECH GRASIM ABB HINDALCO IDEA ABB RANBAXY CIPLA M&M IDBI CIPLA GRASIM RANBAXY IDBI RCOM CIPLA RCOM WELGUJ BPCL HCLTECH CIPLA BPCL BAJAJHIND BPCL GRASIM IDBI SIEMENS RCOM ABB CIPLA PNB GAIL BANKBARODA
0.459782 0.284235 0.30073 0.450777 0.429126 0.530204 0.393636 0.251725 0.621309 0.422445 0.389258 0.492253 0.518761 0.264976 0.590921 0.317156 0.426332 0.431996 0.434712 0.233268 0.436397 0.051384 0.384395 0.257313 0.332449 0.651446 0.532316 0.250123 0.308135 0.42636 0.257004 0.347826 0.164112 0.395834
-0.00018 -0.00032 -0.00027 -1.7E-05 0.000646 -0.00232 2.17E-05 0.000125 0.000931 0.0012 -0.00015 0.000135 0.000714 -0.00068 0.00064 -0.00034 0.000298 0.000889 0.00053 0.001351 0.000797 0.000556 0.000266 -0.00058 0.000757 0.000175 -0.00071 -0.0039 0.000104 -0.00144 0.00049 0.000347 -0.0003 0.000791
III: Best strategy [Excluding 1 SSF + 1 IF model] Spots

1. 2. 3. 3I Infotech Ltd. 3M India Ltd. A B G Shipyard Ltd.
Best Strategy
Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ]
Variance
0.00029 0.000389 0.000193
43 | P a g e
Final Report.
IBS, Hyderabad.
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.
Aarti Industries Ltd. Abhishek Industries Ltd. Ackruti City Ltd. Adani Enterprises Ltd. Ador Welding Ltd. Advanta India Ltd. Aftek Ltd. Agro Tech Foods Ltd. Ajanta Pharma Ltd. Aksh Optifibre Ltd. Akzo Nobel India Td. Alembic Ltd. Alfa Laval (India) Ltd. Allcargo Global Logistics Ltd. Alok Industries Ltd. Amara Raja Batteries Ltd. Amtek Auto Ltd. Amtek India Ltd. Anant Raj Inds. Ltd. Andhra Sugars Ltd. Ansal Properties & Infrastructure Ltd. Apollo Hospitals Enterprise Ltd. Apollo Tyres Ltd. Aptech Ltd. Arvind Ltd. Asahi India Glass Ltd. Asian Electronics Ltd. Asian Paints Ltd. Astrazeneca Pharma India Ltd. Atul Ltd. Automotive Axles Ltd. Avaya Globalconnect Ltd. Aventis Pharma Ltd. B A S F India Ltd. B L Kashyap & Sons Ltd. B O C India Ltd. B P L Ltd. Bajaj Auto Finance Ltd. Bajaj Holdings & Invst. Ltd. Balaji Telefilms Ltd. Ballarpur Industries Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS]
0.0002 0.000331 0.00024 0.000204 0.000183 0.0008 0.000328 0.000112 0.001429 0.004131 7.16E-05 0.000275 7.73E-05 0.00014 0.000281 0.000274 0.000799 0.00072 0.000514 0.000293 0.000327 0.000283 0.00095 0.000257 0.000378 0.000216 0.001554 0.000316 0.000418 0.000345 0.000473 0.000496 0.000352 0.000106 0.000719 0.000173 0.001166 0.000261 0.000228 0.000192 0.000127
44 | P a g e
Final Report.
IBS, Hyderabad.
45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85.
Balmer Lawrie & Co. Ltd. Banco Products (India) Ltd. Bannari Amman Sugars Ltd. Bata India Ltd. Berger Paints India Ltd. Bhansali Engineering Polymers Ltd. Binani Cement Ltd. Birla Corporation Ltd. Blue Dart Express Ltd. Blue Star Ltd. Bombay Dyeing & Mfg. Co. Ltd. Bosch Ltd. Britannia Industries Ltd. C M C Ltd. Cadila Healthcare Ltd. Can Fin Homes Ltd. Carborundum Universal Ltd. Carol Info Services Ltd. Castrol India Ltd. Century Enka Ltd. Century Plyboards (India) Ltd. Chemplast Sanmar Ltd. Cholamandalam D B S Finance Ltd. City Union Bank Ltd. Clariant Chemicals (India) Ltd. Colgate-Palmolive (India) Ltd. Container Corpn. Of India Ltd. Coromandel International Ltd. Corporation Bank Cosmo Films Ltd. Crisil Ltd. D C M Shriram Consolidated Ltd. D C W Ltd. D S Kulkarni Developers Ltd. Dalmia Cement (Bharat) Ltd. Deccan Chronicle Holdings Ltd. Deepak Fertilisers & Petrochemicals Corpn. Ltd. Dhampur Sugar Mills Ltd. Dishman Pharmaceuticals & Chemicals Ltd. Dredging Corpn. Of India Ltd. Dwarikesh Sugar Inds. Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS]
0.000276 0.000303 0.000324 0.000236 0.000372 0.000412 0.00032 0.000162 0.000227 0.000217 0.000401 9.54E-05 0.000402 0.000193 0.000237 2.18E-05 0.000205 0.002003 0.000122 0.000538 0.000612 0.002593 0.002367 0.000173 0.000374 0.000107 0.000107 0.000624 0.000574 0.00023 0.000536 0.000134 0.000222 8.93E-05 0.000469 0.000638 0.000256 0.001472 0.000203 0.000718 0.000593
45 | P a g e
Final Report.
IBS, Hyderabad.
86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99.
Dynamatic Technologies Ltd. E I D-Parry (India) Ltd. E I H Ltd. Eicher Motors Ltd. Elder Pharmaceuticals Ltd. Electrosteel Castings Ltd. Elgi Equipments Ltd. Engineers India Ltd. Entertainment Network (India) Ltd. Era Infra Engg. Ltd. Esab India Ltd. Escorts Ltd. Essar Oil Ltd. Essel Propack Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS]
0.000738 0.00065 0.000153 0.00054 3.8E-05 0.000567 0.000342 0.000944 0.000193 3.81E-05 0.000107 0.000925 0.000354 0.000361 0.000139 0.00026 0.000184 0.000178 0.000816 0.000211 0.001285 0.000563 0.000464 0.00043 0.000384 0.000256 0.000101 0.000231 0.000201 8.54E-05 0.000194 0.000611 0.00038 0.000234 0.000114 0.000231 0.000432 0.000337 0.00022 0.000158 0.000204
100. Everest Industries Ltd. 101. Exide Industries Ltd. 102. F A G Bearings India Ltd. 103. F D C Ltd. 104. Federal-Mogul Goetze (India) Ltd. 105. Finolex Cables Ltd. 106. Finolex Industries Ltd. 107. First Leasing Co. Of India Ltd. 108. Firstsource Solutions Ltd. 109. Fortis Healthcare Ltd. 110. Fresenius Kabi Oncology Ltd. 111. G H C L Ltd. 112. G T L Infrastructure Ltd. 113. G V K Power & Infrastructure Ltd. 114. Gammon India Ltd. 115. Garden Silk Mills Ltd. 116. Gateway Distriparks Ltd. 117. Geojit B N P Paribas Financial Services Ltd. 118. Geometric Ltd. 119. Gillette India Ltd. 120. Gitanjali Gems Ltd. 121. Glaxosmithkline Consumer Healthcare Ltd. 122. Glenmark Pharmaceuticals Ltd. 123. Godfrey Phillips India Ltd. 124. Godrej Consumer Products Ltd. 125. Godrej Industries Ltd. 126. Gokaldas Exports Ltd.
46 | P a g e
Final Report.
IBS, Hyderabad.
127. Graphite India Ltd. 128. Great Offshore Ltd. 129. Greaves Cotton Ltd. 130. Gujarat Alkalies & Chemicals Ltd. 131. Gujarat Ambuja Exports Ltd. 132. Gujarat Fluorochemicals Ltd. 133. Gujarat Gas Co. Ltd. 134. Gujarat Industries Power Co. Ltd. 135. Gujarat Mineral Devp. Corpn. Ltd. 136. Gujarat N R E Coke Ltd. 137. Gujarat Narmada Valley Fertilizers Co. Ltd. 138. Gujarat State Fertilizers & Chemicals Ltd. 139. Gujarat State Petronet Ltd. 140. H C L Infosystems Ltd. 141. H E G Ltd. 142. H M T Ltd. 143. H S B C Investdirect (India) Ltd. 144. H S I L Ltd. 145. H T Media Ltd. 146. Harrisons Malayalam Ltd. 147. Havells India Ltd. 148. Heritage Foods (India) Ltd. 149. Hexaware Technologies Ltd. 150. Hikal Ltd. 151. Himachal Futuristic Communications Ltd. 152. Himatsingka Seide Ltd. 153. Hindustan Motors Ltd. 154. Hindustan Oil Exploration Co. Ltd. 155. Hindustan Zinc Ltd. 156. Honeywell Automation India Ltd. 157. House Of Pearl Fashions Ltd. 158. I N G Vysya Bank Ltd. 159. Ibn18 Broadcast Ltd. 160. Ind-Swift Laboratories Ltd. 161. India Glycols Ltd. 162. Indiabulls Financial Services Ltd. 163. Indiabulls Real Estate Ltd. 164. Indo Rama Synthetics (India) Ltd. 165. Indraprastha Gas Ltd. 166. Indraprastha Medical Corpn. Ltd. 167. Indusind Bank Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ]
0.000574 9.34E-05 0.000257 0.000211 0.000599 0.000207 0.000293 0.000361 0.000348 0.000973 8.95E-05 0.000234 0.000289 0.000174 0.000271 0.000712 0.000214 0.000398 0.000357 0.000519 0.000283 0.000526 0.000525 0.000254 0.000217 0.00082 0.000324 0.000335 0.000318 0.000321 0.002777 0.000563 0.000544 0.000565 0.000132 0.000715 0.000471 0.000383 0.000312 0.000311 0.000889
47 | P a g e
Final Report.
IBS, Hyderabad.
168. Info Edge (India) Ltd. 169. Infotech Enterprises Ltd. 170. Ingersoll-Rand (India) Ltd. 171. Inox Leisure Ltd. 172. Ipca Laboratories Ltd. 173. Ispat Industries Ltd. 174. J B Chemicals & Pharmaceuticals Ltd. 175. J M Financial Ltd. 176. J S L Ltd. 177. Jagran Prakashan Ltd. 178. Jai Corp Ltd. 179. Jain Irrigation Systems Ltd. 180. Jammu & Kashmir Bank Ltd. 181. Jay Shree Tea & Inds. Ltd. 182. Jet Airways (India) Ltd. 183. Jindal Poly Films Ltd. 184. Jindal Saw Ltd. 185. Jindal South West Holdings Ltd. 186. Jubilant Organosys Ltd. 187. Jyoti Structures Ltd. 188. K C P Ltd. 189. K E C International Ltd. 190. K P I T Cummins Infosystems Ltd. 191. K S B Pumps Ltd. 192. K S Oils Ltd. 193. Kajaria Ceramics Ltd. 194. Kalpataru Power Transmission Ltd. 195. Kansai Nerolac Paints Ltd. 196. Karnataka Bank Ltd. 197. Karur Vysya Bank Ltd. 198. Karuturi Global Ltd. 199. Kesoram Industries Ltd. 200. Kohinoor Foods Ltd. 201. Lakshmi Energy & Foods Ltd. 202. Lakshmi Machine Works Ltd. 203. Lakshmi Vilas Bank Ltd. 204. M R F Ltd. 205. Madras Cements Ltd. 206. Maharashtra Seamless Ltd. 207. Mahindra & Mahindra Financial Services Ltd. 208. Mahindra Lifespace Developers Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ]
0.000247 0.000417 0.000173 0.000382 0.000397 0.000102 0.000771 0.000637 0.000253 0.000267 0.001128 0.00053 0.000188 0.000735 0.001124 0.000153 0.000184 0.000429 0.000133 0.000407 0.000305 0.000128 0.000958 0.000157 0.000143 0.000271 0.000309 0.000535 0.000531 0.000133 0.000408 0.000461 0.000259 0.000612 0.000206 0.000426 0.001006 0.000223 0.000139 0.001054 0.000224
48 | P a g e
Final Report.
IBS, Hyderabad.
209. Mahindra Ugine Steel Co. Ltd. 210. Marico Ltd. 211. Mastek Ltd. 212. Max India Ltd. 213. Mcleod Russel India Ltd. 214. Mercator Lines Ltd. 215. Merck Ltd. 216. Mid-Day Multimedia Ltd. 217. Mindtree Ltd. 218. Mirc Electronics Ltd. 219. Mirza International Ltd. 220. Monnet Ispat & Energy Ltd. 221. Monsanto India Ltd. 222. Motherson Sumi Systems Ltd. 223. Motilal Oswal Financial Services Ltd. 224. Munjal Showa Ltd. 225. N I I T Ltd. 226. N R B Bearings Ltd. 227. National Fertilizers Ltd. 228. Nava Bharat Ventures Ltd. 229. Navneet Publications (India) Ltd. 230. Nelco Ltd. 231. New Delhi Television Ltd. 232. Nilkamal Ltd. 233. Nirma Ltd. 234. Noida Toll Bridge Co. Ltd. 235. Omax Autos Ltd. 236. Omaxe Ltd. 237. Oracle Financial Services Software Ltd. 238. Orient Paper & Inds. Ltd. 239. Oriental Hotels Ltd. 240. Oswal Chemicals & Fertilizers Ltd. 241. P N B Gilts Ltd. 242. P S L Ltd. 243. P T C India Ltd. 244. P V P Ventures Ltd. 245. Panacea Biotec Ltd. 246. Paper Products Ltd. 247. Parsvnath Developers Ltd. 248. Peninsula Land Ltd. 249. Pfizer Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ]
0.000634 0.000223 0.001141 0.000365 0.000686 0.00026 0.000127 0.001515 0.000439 0.00028 8.19E-05 0.000593 0.000247 0.000329 0.000388 0.000446 0.000212 0.000785 0.00095 0.000176 0.000236 0.002032 0.000115 0.00032 0.000321 0.000184 0.000931 0.000213 3.31E-05 0.000361 0.000641 0.000147 0.000137 0.000315 0.000348 0.000858 0.000973 5.22E-05 7.08E-05 0.000409 0.0001
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250. Phoenix Mills Ltd. 251. Pidilite Industries Ltd. 252. Piramal Healthcare Ltd. 253. Pricol Ltd. 254. Prism Cement Ltd. 255. Procter & Gamble Hygiene & Health Care Ltd. 256. Provogue (India) Ltd. 257. Puravankara Projects Ltd. 258. Radico Khaitan Ltd. 259. Rajesh Exports Ltd. 260. Rallis India Ltd. 261. Ramco Industries Ltd. 262. Ramco Systems Ltd. 263. Rashtriya Chemicals & Fertilizers Ltd. 264. Raymond Ltd. 265. Redington (India) Ltd. 266. Rei Agro Ltd. 267. Reliance Industrial Infrastructure Ltd. 268. Reliance Infrastructure Ltd. 269. Rico Auto Inds. Ltd. 270. Ruchi Soya Inds. Ltd. 271. S K F India Ltd. 272. S Kumars Nationwide Ltd. 273. S R E I Infrastructure Finance Ltd. 274. S R F Ltd. 275. Sakthi Sugars Ltd. 276. Saregama India Ltd. 277. Seamec Ltd. 278. Shanthi Gears Ltd. 279. Shasun Chemicals & Drugs Ltd. 280. Shopper'S Stop Ltd. 281. Shree Cement Ltd. 282. Shrenuj & Co. Ltd. 283. Shriram Transport Finance Co. Ltd. 284. Simplex Infrastructures Ltd. 285. Sintex Industries Ltd. 286. Sobha Developers Ltd. 287. Sona Koyo Steering Systems Ltd. 288. Sonata Software Ltd. 289. South Indian Bank Ltd. 290. State Trading Corpn. Of India Ltd.
Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS]
0.000453 0.000461 0.000335 0.000553 0.00055 0.000147 0.000244 0.000965 0.00024 0.00029 0.000203 0.00035 0.000276 0.000421 0.000441 0.000305 0.000266 9.39E-05 0.000213 0.000436 0.000505 0.000184 0.002784 0.000585 0.000216 0.000368 0.000698 0.000149 0.000318 0.001526 0.000823 0.000203 0.000338 0.000482 0.000169 0.000364 0.000279 0.000831 0.000626 0.000212 0.001793
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291. Sterlite Technologies Ltd. 292. Strides Arcolab Ltd. 293. Sundaram Finance Ltd. 294. Sundram Fasteners Ltd. 295. Supreme Industries Ltd. 296. Supreme Petrochem Ltd. 297. Surya Roshni Ltd. 298. Swaraj Engines Ltd. 299. T V S Motor Co. Ltd. 300. T V Today Network Ltd. 301. Taj G V K Hotels & Resorts Ltd. 302. Tamil Nadu Newsprint & Papers Ltd. 303. Tamilnadu Petroproducts Ltd. 304. Tata Coffee Ltd. 305. Tata Communications Ltd. 306. Tata Elxsi Ltd. 307. Tata Investment Corpn. Ltd. 308. Tata Metaliks Ltd. 309. Tata Sponge Iron Ltd. 310. Television Eighteen India Ltd. 311. Thermax Ltd. 312. Thomas Cook (India) Ltd. 313. Torrent Pharmaceuticals Ltd. 314. Torrent Power Ltd. 315. Tourism Finance Corpn. Of India Ltd. 316. Trent Ltd. 317. Tube Investments Of India Ltd. 318. U T V Software Communications Ltd. 319. Uco Bank 320. Uflex Ltd. 321. Unichem Laboratories Ltd. 322. Unity Infraprojects Ltd. 323. Usha Martin Ltd. 324. Uttam Galva Steels Ltd. 325. V I P Industries Ltd. 326. V S T Industries Ltd. 327. Vardhman Textiles Ltd. 328. Varun Shipping Co. Ltd. 329. Venky'S (India) Ltd. 330. Vesuvius India Ltd. 331. Videocon Industries Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS]
0.000567 0.00049 0.000308 0.000377 0.000484 0.000437 0.000202 0.000115 0.00088 0.000239 0.000327 0.000146 8.44E-05 0.000153 0.000109 0.000766 0.000414 0.000477 0.000278 0.000167 0.000339 0.000201 0.000198 0.000474 0.000137 0.000445 0.000185 8.69E-05 7.73E-05 0.000113 0.00107 5.34E-05 0.000278 0.000423 0.000877 0.000161 0.000981 7.71E-05 0.001071 0.000685 0.000154
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332. Vishal Retail Ltd. 333. West Coast Paper Mills Ltd. 334. Wockhardt Ltd. 335. Wyeth Ltd. 336. Zensar Technologies Ltd. 337. Zodiac Clothing Co. Ltd. 338. Zuari Industries Ltd.
Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 2[1SSF based on CORRELATION]
0.000538 0.000529 0.000287 0.000224 0.000111 0.000663 0.001386
IV: Best Strategy [Including 1 SSF + 1 IF model]: Spots

Adani Enterprises Ltd. Asian Paints Ltd. Bosch Ltd. Container Corpn. Of India Ltd. Essar Oil Ltd. Hindustan Zinc Ltd. Oracle Financial Services Software Ltd. Reliance Infrastructure Ltd. Tata Communications Ltd. Torrent Power Ltd.
Best Strategy
Strategy 5 [1 SSF + 1 IF] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 3 [ONLY 1 IF ] Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION]
Corresponding Variance
-0.02076 0.000316 9.54E-05 0.000107 0.000354 0.000318 3.31E-05 0.000213 0.000109 0.000474
V: Frequency of different strategic models.

Excluding 1 SSF & 1 IF
Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 4 [EITHER 1 SSF OR 1 IF]
Frequency
77 97 164
Percentage
22.7810651 28.6982249 48.5207101 0 100 30
*
Total
0 338 3
Including 1 SSF + 1 IF
Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS]
Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ] Strategy 4 [EITHER 1 SSF OR 1 IF] Strategy 5 [1 SSF + 1 IF]
2 4
20 40 0 10 100
*
Total
0 1 10
*The values for the strategy 4 is coming out to be zero because it has been taken care either in second or in third strategy. This was
basically a redundant model and the zero figures signifies that there has been no computational error in the workings.
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VI: Histogram representation of frequency of different Models[Excluding 1SS+1 IF]
180 160 140 120 100 80 60 40 20 0 Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF Strategy 3 [ONLY 1 Strategy 4 [EITHER based on IF ] 1 SSF OR 1 IF] CORRELATION]
VII: Pie chart representation of frequency of different Models[Including 1SS+1 IF]
Chart Title
0% 10% 30% Strategy 1 [ 1 SSF based on MAHALANOBIS METRICS] Strategy 2[1SSF based on CORRELATION] Strategy 3 [ONLY 1 IF ]
40% 20%
Strategy 4 [EITHER 1 SSF OR 1 IF]
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Part II: High Frequency Trading.

Introduction: The term High Frequency comes from Physics which basically means fast oscillations. A High Frequency wave has very low amplitude and a very low wavelength and hence it is capable of making large number of oscillations per unit of time. If we see the actual price movements of a stock then there seem to be only one line moving along with the time. However, if we zoom in to the price line [Fig A], there are actually three lines Bid, Mid and Offer price [Fig. B] and the actual price moves along this bid/ask spread [Fig. C.]
Fig A
Fig. B
Figure: The Bid/Ask Spread.
Fig. C
There have been different definitions of High Frequency Trading given by different website sources. However, there seem to be three common characteristics to most types of HFT:1) It depends on Ultra-Low Latency where the dependency is mainly on incredibly fast (sub millisecond) speed of execution. 2) It has a very high throughput rate of trading which has an ability to send hundreds, thousands or even thousands of orders to the market every second. 3) It enables holding positions for a small time period before they are closed out after making small profits.
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Additionally, there are generally three common characteristics to most firms who have successful HFT operations. They tend to have:1) algorithms that use highly developed quantitative models and methodologies to determine when and where to trade. 2) extremely fast computing power, because it uses multicore technology to drive those models and algorithms. 3) an infrastructure which allows the traders to send orders to the exchange and receive executions back in a few microseconds.
Queue Follows FIFO
In the above figure it is clear that if you are first in the queue then definitely you are most likely to have a higher fill ratio than the rest of the market players and hence you have an edge over others. HFT has its own limitations also. The entire algorithmic design of High Frequency trading involves a huge cost. This is the reason that why only serious players take their stride forward in this field. Generally, High Frequency Traders are trading their firms money (i.e. proprietary trading) rather than offering it out to their agency customers. Increasingly however, quantitative hedge funds are starting to become players.
High Frequency trading firms do need to co-locate their infrastructure and exchange connectivity in the same data centers as the exchanges and execution venues. The rationale behind this
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reasoning is that with less distance to travel, the order messages can get their destination faster and hence the execution is also faster. High Frequency Trading is growing exponentially and today HFT accounts for a significant portion of all volume traded on the worlds Exchange. There are basically two categories of players; one who are liquidity providers (or market makers) and ultra short term positional traders (generally buy side firms looking to arbitrage, or capture alpha.)
The high frequency trading algorithms are extremely secretive. Recently, it was in news when an ex-Goldman Sacs trader was excused of stealing the firms proprietary code for an algorithmic trading system, a system which was able to generate multiple small profits by systematically trading electronic markets at lightening speed, in effect a goose that could potentially lay golden eggs day in and day out.
Literature Reviews: Tata Consultancy Services [TCS] published a paper, Algorithmic Trading: Pros and Cons, authored by S K Rao which shows that how this algorithms work, discusses whether it is a boon or bane and reflects that how TCS company can contribute in this area. Cameron Smith, the general counsel of Quantlab Financial LLC, a Houston based quantitative technology and trading company contributes a very interesting commentary in the Traders magazine Online News on March 17, 2010 which showed that how High Frequency Trading benefits all traders. These views were attacked by Sal Arnuk from Themis Trading Blog. The seminar given by DESIS on HFT by Anoop Prasad on March 31, 2010 on High Frequency Trading was worth attending. The high frequency trading blog by Tyrone was very helpful to understand the logic behind the HFT.
Implementation of HFT: High Frequency Trading systems has to be bulletproof. They have to work incessantly day in and day out without any errors. Slightest error can lead to significant losses. Therefore high frequency trading desks have to be very careful about how to implement and roll it out to the market. So, the system implementation has to be well planned with thorough analysis stage, the system has to be well designed and the roll out process should be properly managed with proper maintenance.
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Planning and Analysis: The planning stage is critical to the success of the high frequency trading project. Many crucial issues are taken into consideration during this stage, including budget, time schedules and project plans, system functionality, business goals, platform to be used, other technical and operational considerations.
Design and Integration: The initial planning and analysis phase is followed by design and integration phase where the specifications are mapped onto a detailed system design. The development of the software starts in this phase. Efficient software engineering techniques are followed here where the huge coding process is broken down to small modules. Different teams work on different modules. Each component or module of the system should have a clear function and purpose. The different modules should be designed in such a way that that it can be easily integrated in the later phase of software development. Different teams of developers work on discrete modules which are finally assembled and tested as a whole.
Implementation and Roll out: The implementation phase is where the high frequency trading system is rolled out and tested in market conditions, usually in User Acceptance Test [UAT] environment, under various market and stress conditions. During this phase, the latency and throughput figures are closely monitored to ensure that positions can be entered and exited within the required timeframes.
As cited earlier that the dynamics of HFT entirely depends on the speed, there is a dependency here that where the system is actually sited. As stated earlier, to achieve the lowest latency, HFT systems are generally housed in the same data centers as the exchanges themselves, a practice called as co-location. By having less distance to travel, order messages suffer less from the latency they would incur if they were sent over longer distances.
Distance is one thing that can affect latency, but it is not the only thing. The efficiency of the High Frequency Trading mainly depends on the efficiency of the algorithm designed, the speed
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and performance of the processor, capacity to use multi threading and capacity to maintain low levels of process in the stack of the processors.
Monitoring and Maintenance: When everything has been tested, when the figures have been proven and when the system has demonstrated its ability to perform under load, it is ready to go live. Once operating in a live environment, it is crucial that the high frequency trading system is closely monitored and well maintained. In most of the cases, the system has to be fine-tuned or tweak-ed so that it operates at optimum performance in the live environment. HFT can be highly profitable only when the system is well designed and well maintained.
The algorithms of the High Frequency Trading are kept highly confidential. It involves a huge sum of money and the financial world seems to set up towards a new generation of High Frequency trading. Recently, an ex- Goldman Sacs trader was accused of stealing the firms proprietary code for an algorithmic trading system which was able to generate small profits by systematically trading small electronic market at a lightening speed, in an effect that could lay golden eggs day in and out. High frequency trading has been in news most of the times for a wrong reason. It has been charged with accusations of market manipulation and even illegal practice. Most of the people feel that they are at a disadvantage because their brokers and traders do not have any access to such technology. Their furore has been increasing which has resulted in a number of proposals on the table to see if the playing field can be leveled to assuage the clamour of the investing public. However, there are many misconceptions and misunderstandings of the High Frequency Trading. HFT is nothing but a more sophisticated way of Front-running the markets. Most of the people argue that it is just the advancement of technology and hence it is no-where illegal. Let us first look that how HFT works.
The Algorithm behind the HFT: HFT strategy runs on a set of algorithms which is usually developed and programmed by highly paid computer boffins at proprietary trading firms. These algorithms take into consideration
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various factors such as when and where to trade, including the price of a security, size or liquidity available, various timing consideration (like how quickly an order can be executed or when exactly an order should be placed to ensure the strongest chance of execution), how likely an order is to be filled and the overall cost of transaction. All these factors are taken into consideration when firms are developing and deploying the trading algorithms and each individual factor can have a significant impact on the overall profitability of the firm.
Price and Size: Price and size are the two important factors which are closely linked because together they determine liquidity. Price is obviously one of the most important criteria because it is
advantageous to execute at a favorable price. But if you are only able to execute a small amount at that price ( i.e. liquidity is not there) then the potential of earning profits will be limited.
Fill Ratio: The fill ratio is the percentage likelihood that an order will be executed. Many algorithms use statistical analysis and historical benchmark to calculate the probability of fill ratio percentage and some algorithms will guarantee that their fill ratio percentage will be above a certain level.
Transaction Cost: The full costs of performing a transaction also have to be taken into consideration with any algorithmic or high frequency trading strategy, because if those costs are more than the profit per transaction, then the algorithms will be unsuccessful. These transaction costs take into account not only transparent items such as fees, commissions, and taxes but also estimates the latent costs such as opportunity costs, price movement during execution, fluid bid/ask spread and a multitude of other intangible and moving targets.
Time: Time is also a most important criteria for most algorithmic strategies. Speed of execution is highly significant because the faster you can get your order into market, more likely the chance is to hit a quoted price. But algorithm timing itself is also an important factor. Many algorithms take into account the timing of when big buy side orders are likely to be in the market. Most of
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the times, many buy size orders are executed towards the end of the day. One way of making money is to incessantly look for discrepancies in market. Such differences like one shown in the next figure happen for a very short period of time and you need to be really alert to take such actions.
One Strategy Of making money in HFT Aggression & Sleath: The algorithmic trading account itself takes into account the above five criteria and determines how to dive into the market and which strategy to implement passive or aggressive and whether any kind of order slicing or waving is to be used. The aggressive orders strategies will generate market orders which will hit the existing bids or orders, enabling them to absorb liquidity at the quoted price. On the other hand, passive strategies on the other hand will generate limit orders either joining the current bid or offer, or a number of ticks below or above the current spread.
As far as the strategy is concerned, slicing and waving is the practice of splitting a large order up into smaller chunks into the market at an incessant continuous intervals or waves. If those waves have any kind of random element, they can allow the trader to operate in a kind of stealth mode, releasing the order into the market without tipping his hand to other traders or investors, who might be watching for large orders coming through.
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High Frequency Trading & the SEC: The Securities and Exchange Commission (SEC) has been trying to come up with adequate proposals to counter the spread of high frequency trading and the possible damage it may be doing to the markets and to institutional and private investors. So far, the SEC has been focusing three areas:i. The potential abuse of Flash orders, where HFT practioners submit multiple orders to the market and then immediately cancel those orders, enabling them to see liquidity ahead of the rest of the market. ii. It is also concerned over the dark pools of liquidity i.e. Multilateral Trading Facilities[MTFs] where the order book is not publicly displayed. iii. Naked access to markets, where broker dealers allow their clients to make use of their high speed connections to the exchanges, without the need of any pre-trade filtering or risk controls.
One of the problems that the SEC faces however is that this is a global market and HFT is quickly becoming a global practice. Developments in exchange technology are helping to facilitate this. Naked access is causing a big headache for the SEC. They believe it is only a matter of time before this unfiltered access either is abused by a non-member firm or causes chaos on the markets by someones unfiltered algorithmic trading engine going haywire. Of course, theoretically either situation could happen.
The problem with naked access is that neither the exchanges themselves nor the regulators know who is actually submitting an order if it comes direct through a brokers market access gateway. And if the order is being created by the black box algorithm, the SEC feels that the onus should be on the broker to prove that all the orders are going through pre trade risk filtering and checking before hitting the exchange. The broker doesnt like this because any such checking of orders requires additional systems and controls to be put in place, systems and controls that not only increase their costs, but add to the latency of the orders hitting the market. Last week, the markets tripped by 1000 points in just ten minutes because of an error in algorithmic trading.
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High Frequency Trading & Sub-Penny quotes: One of the areas the SEC is focusing on is sub-penny trading, i.e. exchanges quoting share prices in increments of less than a cent (e.g. half a cent or a tenth of a percent.) The initial proposal for subpenny trading to be introduced for lower priced stocks whose trade price was less than five or ten dollars per share. For high frequency traders, who send multiple orders into the markets at high speed hoping to capture ticks just ahead of their competitors, sub penny trading is a good thing.
There has always been a history in the markets of sub penny quoting and trading. Those arguing for sub-penny trading say that it would bring added liquidity to the markets. And this argument does make sense, particularly for lower priced, actively traded stocks. When there is a significant order volume backed up at a particular price level on the traditional lit markets, the dark pools that are able to offer pricing in half cents can come in between the big board bid/ask spread and hence can take liquidity.
At lower priced stocks, the bid/ask spreads on the board are generally wider, as a percentage of the price, than they are on higher priced stocks. Artificially wide, according to some, the overall impact is quite significant. Opinion is quite divided over the sub penny quoting. Many buy side managers see it as just another way for the high frequency traders to skim the markets ahead of the big orders. Subpenny trading certainly seems to be in the interests of market transparency, which is one of the reasons, why this time around it looks as if the SEC is considering the idea more seriously. The exchanges are continuously losing the markets to the MTFs and the dark pools. This situation will only continue if the dark pools are constantly able to offer slightly better prices off the board than exchanges are able to offer on board along with cheaper transaction costs. From HFT standpoint, sub penny quoting will certainly provide more opportunities to capture alpha. HFT speeds How low can one go? ALGO Technologies, headed by Hirander Misra (Former Chief Operating Officer of Chi-X Europe) has designed a system that takes just 16 microseconds (i.e. sixteen millionths of a second) to process a round trip transaction. The speed based on a throughput of 300,000
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messages per second, has been independently verified by Corvil, the low latency management and monitoring specialists (they provide systems that monitor, analyze and optimize network infrastructure for trading and market data.) It all depends on the architecture. The new system has been designed from first principles around FPGA (Field Programmable Gate Array) architecture to measure the latency the latency was achieved at the software level.
According to Misra, this new system kills the latency debate because he is convinced that no competitor can produce anything which is faster than the basic Physics. Once you start approaching the speed of light, there is no where to go. However, there is still room for the fractions to be shaved off before the physical limitation of speed of light is reached. The situation is exactly becoming similar to an old story where two high frequency traders are on Safari. Coming out of the jungle into a clearing, they are faced with a hungry lion, staring at them and licking his lips. One of the traders immediately starts taking off his boots and donning a pair of sneakers. What are you doing? says the other trader. Youll never be able to outrun a hungry lion. I dont need to outrun the lion says the first trader. I only need to outrun you.
The HFT debate : Cameron Smith Vs Sal Arnuk In the blue corner, we have Cameron Smith, General Counsel of Quantlab Financial, recently wrote a very good article in defence of HFT on the Traders magazine website. In the red corner, we have Sal Arnuk from Themis trading, who put together a spirited response to Smith in his blog. These guys are traders and know exactly what they are talking about. In a nutshell, the arguments from both sides are as follows:1) Smith says that the high frequency traders add liquidity to the markets. Arnuk counters that they only add liquidity to the top 100 stocks or so, and that the smaller cap stocks are actually suffering from wider spreads and greater volatility as a result of HFT. Both are true, so we can call this round a draw. 2) Smith argues that HFT aids price discovery. Arnuk argues that the HFT can actually have the opposite effect, because HFT is essentially price agnostic. May be I am little obtuse, but still I feel that Arnuk does not substantiate his point and so I will give this to Smith. 3) Smith claims that HFT reduces the transaction cost whereas Arnuk argues that the full cost of the transaction is not taken into account. Again, they both are right. The growth of
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the automated and HFT has significantly lowered transaction costs, but retail investors are not fully aware of the costs of doing business in these automated markets. So, I will again call this one as draw. 4) Smith discusses in his post that how HFT is actually an evolution of traditional market making. Arnuk quite correctly says that this is not the case because the markets are obliged to provide a two way quote in all circumstances, whereas high frequency traders do no such thing. So, Arnuk definitely wins round 4. 5) Smith makes some excellent points in his article about how the growth of HFT, together with the structure of the US equities market has led to a fair, transparent and efficient that is beneficial to all. Arnuk counters that the current structure of the markets is neither fair, transparent nor efficient. Both of them provides ample example to defend their point. Now it is really tough to decide on a priori. So, I will leave this for the readers to decide.
Benefits of HFT: High frequency traders are making money by taking small advantage of exchange rebates. Some exchanges in order to capture volume and increase liquidity over the competitors, offer a small percentage fee to firms who are first to hit a bid or an offer. Though these rebates are small, these amounts quickly add up when the trades are running into millions. High frequency traders argue that they are beneficial to the markets because they provide liquidity.
Controversies Hovering around HFT. When HFT came to light among the chattering classes, it immediately caused a furore. Accusations of market manipulation and even illegal practice flew right, left and centre. There are different strategies used by different hedge firms. Some of the strategies are highly controversial. One of them is where the firms ping small orders into the market place to detect where liquidity and large orders might be residing. The basic principle is, if these small orders are filled very quickly, then there is likely to be significant liquidity available with a big order on the other side. Some of the less controversial are less controversial such as short term statistical arbitrage (looking for arbitrage opportunities amongst anomalies between groups of closely related stocks); volatility trading (taking advantage of the rate of change of price) and pure arbitrage where price imbalances exist briefly for microseconds where they should not.
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The HFT is on its rise and it is the traders behind those machines that have been reaping the benefits. The question which has been asked again and again is that is it at the expense of other investors? Is HFT allowing the few players to manipulate the markets, however subtly? By submitting millions of order messages to electronic stock exchanges at sub millisecond speeds, HFT traders are able to find liquidity ahead of other traders and investors and execute their orders at slightly preferential levels. By doing this systematically and incessantly, those small price advantages can add up to millions, even billions of dollars in profit accounts.
Critics say that this is at the expense of other market participants, but HFT has enabled most of the investment bank to stay profitable in the wake of disastrous economic climate of the last couple of years. These days, the SEC is keeping its eye on the HFT traders mainly because they are concerned that the individual investors are not only at a disadvantage to high frequency traders, but they are actually been forced to play in the manipulated market.
Things have certainly changed since the early days of the stock exchanges. When regulation ATS [Alternative Trading System] was set up, SEC did not anticipate the growth of algorithmic trading where multiple markets are systematically sourced by powerful computer programs to find untapped liquidity and trading opportunities. The high frequency traders are able to beat the market is by taking the advantage of the loopholes in the market regulation, allowing them to rapidly issue and cancel small orders to find where big orders are residing. This gives them an advantage that other investors dont have.
Generally, when a company reports strong earnings figures and a group of investors decides to buy shares in the company. Traditionally, when investment funds want to buy large amounts of stock, they split their orders into multiple small orders, to avoid showing their hand on the market. However, the high frequency traders are able to see these orders before the rest of the market and can get their orders first, buying shares in high volume and thus driving up the price before selling them again to the investors who originally wanted them. Most of the critics claim that this is nothing more than a sophisticated form of front running and this practice should be stopped. The argument from the HFT is that they are providing liquidity to the markets, but this
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argument does not always stand up. Many algorithmic trading strategies operate in a such a way that they seek out and take liquidity ahead of other market participants, rather than adding it in a meaningful way.
Recommendations and the Road Ahead for HFT: President Obama has unveiled plans to crack down on the banks proprietary trading activities. Like the SEC in the US, the European regulators are now also taking a very close look at algorithmic trading and high frequency trading. But they seem to scratch their heads when it comes to deciding what action to take. The general consensus seemed to be that the HFT need to be more open and transparent. They dont necessarily have to give away trade secrets, but they do need to explain themselves in a better way. The SEC held a high level meeting to discuss these issues on January 13th. The outcome of that meeting was twofold. First, the SEC is launching a wide range review of the equity markets and soliciting public opinion to open up a debate on the topics of high frequency trading and dark pools of liquidity. The key question here is whether the current structure is fair to all investors and in long term interest of the market. Second, the SEC are proposing a new rule to prohibit naked unfiltered access, making it mandatory for broker dealers to implement pre-trade risk controls when giving direct market access to their clients.
HFT algorithms are highly secretive in nature and SEC is exactly not getting what these algorithms actually do to the market. It is really a high time now for the SEC to intervene and take some actions. They should give better guidance to the market participants on what it is and what is not acceptable. There is not enough clarity at the moment on various issues related to high frequency trading, including naked/sponsored access, flash orders and co-location. With better guidance and greater clarity the markets will regain some of their dwindling credibility and stability. The regulators need to gain a better understanding of who exactly is doing what when it comes to HFT, how they are doing it and how it affects other market participants. And this data should be made widely available and open to public scrutiny. There needs to be a clear set of definitions from regulatory bodies on what actually constitutes manipulative activity. Any definitions that currently exist need to be brought up to the date to account for the rise of HFT
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and other practices that didnt exist when the current regulations were originally drawn up. The SEC must focus on reducing operational risk and the potential damage to the markets from the widespread systematic risk. Exchanges can impose universal pre-trade risk checks, so that no orders can be sent into the electronic market without first being checked against pre defined limits. Few of the brokers argue that this will increase the latency but if this is universal then all market participants will be equally impacted and they can develop some technology so that the time consumed in checks can be abated which will be a positive development. I also think that there should be a cancellation fee or tax for order cancellations. This will prevent them to detect the liquidity ahead of others and so this will act as a death knell for the HFT which makes money on this strategy.
Thank You.
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Conclusion:
As stated earlier, there are lots of research papers which discuss about the estimation of hedge ratio and compare the different methods to estimate it. However, there are very few works which concentrate on finding the best match. There are no physical method which can wipe out the involvement of basis risk from the cross hedging. However, by proper mathematical analysis, by first finding a perfect match based on the best parameters and then estimating the hedge ratio, we can significantly abate the involvement of basis risk. The different cross hedging models built in this project is just a simple attempt to prove that cross hedging can be equally lucrative as other hedging techniques.
HFT is in its burgeoning phase and is undoubtedly the next bug thing in the financial world. As technology has emerged in different sectors, this field can be no extension. The research works and articles written in this are few but this project brought a concise overview of the HFT world. Till now we have seen that HFT are focusing on low latency, but there may be a time soon when SEC imposes various checks on HFT to deal with naked access and other manipulations. Hence the HF traders will equally start concentrating on abating the time involved in the checks along with abating the latency involved. What will be the next phase of HFT? Only time will tell. It all depends on the legal decisions imposed by SEC for HFT in coming months. Stay Tuned.
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References:
i. Hull J. C., 2006. Options, Futures and Other Derivatives, 6th edition. New Delhi: Prentice hall of India Pvt Ltd. ii. Gujarati D. N., 2010. Essentials of Econometrics, 4th edition, New York: McGrawHill/Irwin. iii. Chase D. M., 2004. An introduction to Derivatives and Risk Management, 6th edition, Thompson South Western. iv. Brooks C., Davies R. J. & Kim, S. S., 2004, Reducing Basis Risk For Stocks by Cross Hedging with matched Futures. ISMA Centre, The Business School For Financial Markets, pp. 3-20. v. vi. Autonomous, Mahalanobis Distance. [Online]. Available from www.wikipedia.com Brooks C., Davies R. J. & Kim, S. S., 2004, Cross Hedging with Single Stock Futures. ISMA Centre, The Business School For Financial Markets, pp 1-31. vii. Narasimhan M. S. & Ubaidullah V. Z., 2007, SSF: The Effect Of Their Trading On The Volume, Volatility and Returns of the underlying stocks in India, The Journal of International Finance and Economics. viii. Anonymous, 2009. We Fear What We Dont Understand. Blogspot blog. [Online] Available from http://fridayinvegas.blogspot.com/2009/07/we-fear-what-we-dontunderstand.html Anonymous, 2009. If You Hate High Frequency Trading, You Should Love Dark Pools. Blogspot blog.[Online] Available from http://www.businessinsider.com/ifyou-hate-high-frequency-trading-you-should-love-dark-pools-2009-10 Anonymous, Algorithmic Trading [Online] http://en.wikipedia.org/wiki/High_frequency_trading Available From :
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xi.
Tyrone, 2009.High Frequency Trading Review [Online] Available From: www.highfrequencytradingreview.com Rao, S.K., 2010. Algorithmic Trading: Pros and Cons, TATA Consultancy Services, pp 1-12. Anoop Prasad, March 31, 2010, Live Seminar on HFT at DESIS 5:00PM-6:00PM..
xii.
xiii.
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Cross Hedging &amp; HFT

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D E Shaw India Software Private Limited.

THE SUMMER INTERNSHIP PROGRAM

D E Shaw India Software Pvt. Ltd. [DESIS].

CROSS HEDGING AND HIGH FREQUENCY TRADING.

Submitted By: Abhishek Kr. Sinha 09BSHYD0023.

Submitted to: Dr. Kanchan M Herlekar Coordinator, Finance, IBS - Hyderabad.

ICFAI BUSINESS SCHOOL, HYDERABAD.

D E Shaw India Software Private Limited.

A REPORT ON CROSS HEDGING AND HIGH FREQUENCY TRADING.

BY Abhishek Kumar Sinha 09BSHYD0023

D E Shaw India Software Private Limited, Hyderabad.

ICFAI Business School, Hyderabad.

D E Shaw India Software Private Limited.

A REPORT ON CROSS HEDGING AND HIGH FREQUENCY TRADING

BY Abhishek Kumar Sinha 09BSHYD0023

D E Shaw India Software Private Limited.

IBS & DESIS, HYDERABAD. May 14, 2010.

D E Shaw India Software Private Limited.

I wish him a rewarding career ahead.

Vishnu Pradeep Chilakamarri Manager, Futures & Compliance, DESIS, Hyderabad.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

List of Tables, Illustrations and Appendix.

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D E Shaw India Software Private Limited.

Part I: Cross Hedging.

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D E Shaw India Software Private Limited.

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D E Shaw India Software Private Limited.

Adjusted Closing Price

Adjusted Closing Price of Sensex from 5 th Oct,07to 31 st Mar, 10

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

Beta Spot X SSF 1 SSF 2 SSF 3 SSF 4 SSF 5

Market Cap[in Crores]

2929 3074 4326 2398 3406 5235

An example: Hedging spot X with 5 SSFs available.

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D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

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D E Shaw India Software Private Limited.

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D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

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Appendix for Cross Hedging

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D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

D E Shaw India Software Private Limited.

Cross Hedging & HFT

Cross Hedging & HFT