The India Signal

We have been requested for a signal product for quite some time. Though ORMI is based on Jiseki signals, it generally needs on average more than 10 components to build a portfolio, a few equal weighted and many weighted proportionally. Keeping in mind the need for a signal product we are introducing the ORMI IFTY Active 5. This is still a portfolio product but has just a small 5 component portfolio selected from the NIFTY 50 Universe. This makes it very liquid, very tradable, and workable on options and very signal. The reason we still opted to build ORMI for such a small selection is because we think even few signals should be open to back testing, equity curves and portfolio workings. Diversification is key for even signals, and six running signals (including cash) offers a good opportunity for any active trader on India.

We understand that signal trading comes with leverage, which is desirable for a trader. But ORMI IFTY 5 is designed for cash only now. We are working on replicating ORMI IFTY 5 using Options and on our first ORMI India Options Portfolio. Leverage only means long or debit Options for us. We strongly recommend not implementing the respective ORMI using futures. Just for starters and showcase the replication process we have simulated IFTY 5 with 2X and 3X leverage. We need to look at contract specific margins, tradability, portfolio size, component weights before we suggest which strikes to use. The higher the leverage, the more the risk and how fast one can burn the risk capital. ORMI methodology has witnessed lower comparative standard deviation; this is why the burn rates at 2X and 3X are low. But these are still simulations which do not warrant a trade execution.

IFTY 5 numbers; average holding 37 days, portfolio wide stop and 2008 negativity gives it an average 47% cash; annualized returns were 3.25 times NIFTY at 21%; standard deviation was 10% lower; since Jan 2013 IFTY 5 outperformed NIFTY; and underperformed only 3 out the 7 years till now vs. Nifty. IFTY 5 2X and 3X had average volatility 30% and 50% respectively; annualized returns were at 42% and 62% respectively; both passed the 2008 test by conserving starting cash from JULY 2006.