Tuesday, August 26, 2014

Search for the Counter Cyclical

Statistics is very fascinating but it is only recently in the past year or so, I began to realize its power. As humans, we cannot be sure of anything ( unless it is thrown at our face) and statistics can help us get that extra boost of probability

In 2008 the market collapsed and almost every stock was dealing in RED. But were there any stocks that braved the downfall ? If there are any they would be a certain hedge on your portfolio.

As a simple exercise, I collected data from over 500 companies listed on NSE for the past 7-8 years and ran some simple correlations between the price trend and the index ( CNX 500 in this case )

There is a stock PETRONET.NS that in fact had a correlation -0.3 with the Index at that time. PETRONET does business in LNG. There can be a lot of reasons for this.One can say It belongs to the Energy/Petroleum sector. But when I checked  the stocks of other oil companies ( RELIANCE,ONGC etc) they did not have the same trend. Almost all of them suffered a fall

( The graph taking the plunge in 2008 is the CNX 500  vs PETRONET)

However, I played around and found another GAS company ( IGL -> IndraPrastha Gas )
This shows that although it trailed the Index during the 2008 downturn, it has always remained counter cyclical to the index post 2010
( The graph taking the plunge in 2008 is the CNX 500  vs INDRAPRASTHA Gas)
There might be hidden trends in the stock movement of the GAS companies. There can be many reasons
1) Does not India rely on imports for LNG
2) LNG is a necessity ( upturn or downturn )

We need to ascertain this trend for GAS companies. More updates coming