Relative strength Indicator (RSI) was developed by J. Welles Wilder Jr. in 1978, it is a momentum oscillator which measures the momentum of price fluctuation. The RSI indicator moves between zero to 100. Normally, when the RSI indicator moves above 70, it is considered overbought condition. When the RSI indicator falls below 30, it is considered oversold.
RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]
The RBI’s primary goal is to maintain price stability while controlling inflation and maximizing growth. To achieve its goal, central banks can use a variety of monetary policy tools. Price stability can be achieved by adjusting repo and reverse repo rates, the CRR and associated ratio, and other variables. On May 16, 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory foundation for the implementation of the flexible inflation targeting framework. Under India’s flexible inflation targeting (FIT) approach, the central bank is expected to work to keep retail inflation at 4%, with an upper tolerance limit of 6% and a lower tolerance limit of 2%.
It is a portfolio of investments that includes every type of asset available in the investment universe, with each asset weighted in portion to its total presence in the market. A market portfolio is constructed with the appropriate asset class mix in order to maximise investment returns while minimising manageable unsystematic risk. A market portfolio’s expected return is identical to the market’s overall expected return. It is critical to build a portfolio strategically because different asset classes behave differently and few indexes behave similarly.
The concept of a market portfolio is central to many financial theories and models, including the capital asset pricing model, in which it is the only fund in which investors must invest, supplemented only by a risk-free asset based on each investor’s risk tolerance.
Types of market portfolios
The beta of securities in a defensive portfolio is relatively low. The goal of a defensive portfolio is to save the initial investment. Stocks that are unrelated to market movements are chosen for this type of portfolio. Investors seeking low volatility to minimise risk and are willing to accept low returns. Defensive stocks are not the same as defence stocks.
The most commonly used portfolios are aggressive portfolios, which take on high risk in exchange for higher returns. Profits are made by taking advantage of stock fluctuation when the beta is high.
This portfolio is reliant on dividends as investment profits. Companies generate cash flow by paying out interest or dividends to their shareholders. The income portfolio’s securities are heavily influenced by the economic downturn or upturn.
Under-valued securities are included in the portfolio because they can be purchased at a lower price after a bargain. During an economic downturn, the price of these value securities barely sustains, and the majority of investors following the trend shift to more profitable stocks. Following the economic recovery, these securities typically provide significant income to investors.
Multi Asset allocation
Multi Asset Allocation Fund creates a portfolio of assets by combining asset classes. These funds typically invest in equity, debt, gold, and other commodities. The fund benefits from diversification because of the minimum investment criteria. The fund manager’s allocation of funds in multi asset allocation is determined by the economy. In a bullish market, the fund manager can increase the portfolio’s exposure to equity-related instruments while decreasing exposure in a bearish market. Diversification produces risk-adjusted returns and reduces weather volatility.
It is a technical indicator that can be used by market analysts and investors to determine the direction of a trend. It averages the data points of a financial security over a given time period. It is referred to as a “moving” average because it is constantly recalculated using the most recent price data. Analysts employ the moving average to examine support and resistance by analysing price movements of an asset. It reflects a security’s previous price action/movement. Analysts then use the data to forecast the future direction of the asset price. It is referred to as a lagging indicator because it lags behind the price action of the underlying asset in producing a signal or indicating the direction of a given trend.
An investor’s market order instructs a broker to buy or sell security at the best available price in the current market. Your order will almost always be executed as long as there are willing buyers and sellers, but the price you pay when your order is executed may not be the price you expected.
These are the most basic types of orders, in which buying or selling will be fulfilled at the current market price. The orders are executed as long as there are willing buyers and seller. Market orders are used when execution is more important than execution price. This order type provides no control over the price received. In volatile markets, the price paid or received may differ significantly from the last price quoted before the order was placed.
To trade on the exchanges, every stock or security requires a market of buyers and sellers. They are high-volume traders who make a market for securities by being ready to buy or sell at any time. They profit from the bid-ask spread while also benefiting the market by increasing liquidity.
Mid cap fund
The market capitalization of mid-cap companies ranges from Rs 500 to Rs 10,000 Cr. They are ranked 101 to 250 in terms of market capitalization. In the long run, not all mid-cap stocks grow to become large-cap stocks; some even go bankrupt along the way. Mid-cap stocks require a seven to ten-year investment horizon, but they may underperform in the medium term. As a result, they are risky stocks that have the potential to outperform the market over time.
Multi cap funds
Multi-cap funds have diverse portfolios because they invest in large, medium, and small businesses. The offer document specifies the fund’s proportion and investment objective. A time horizon of five years is ideal for investing in these types of funds. Because they have small and medium cap stocks in their portfolio, they can also provide losses.
Money market fund
Money Market Funds are short-term debt funds that lend to businesses for up to a year. These Funds are structured in such a way that the fund manager can generate higher returns while keeping risk under control by adjusting lending duration. Longer loan terms usually result in higher returns. Money market participants typically include banks and other financial institutions, institutional investors, corporations, and so on. Overnight securities such as Tri-Party Repos, Commercial Papers (CPs), Certificates of Deposit (CDs), and Treasury Bills are examples of money market instruments.
Market capitalization, commonly called market cap, is the market value of a publicly traded company’s outstanding shares.
Market Cap = Price of share * Total no of outstanding shares
The market cap depends on many factors.
- Demand and Supply
- Shareholding pattern
- Economic environment like macroeconomics, and geopolitics.
- Company / industry specific news
Traditionally, companies were divided into large-cap, mid-cap, and small-cap.
It is a statistical analysis theory that states that asset prices and historical returns gradually return to the long-term mean, which can be based on the economy, industry, or average return within a set of data. The larger the deviation from their mean, the more likely the next movement of asset prices will be closer to the mean. Mean reversion can be applied to volatility, earnings, earnings growth rates, percentage returns, prices, interest rates, and even the P/E ratio.
Momentum in finance refers to a price trend’s ability to continue moving forward. Strong momentum can keep an upward or downward trend going. They are technical analysis tools used to determine a stock’s price strength or weakness.
Popular Momentum Indicators
- Moving Average Convergence Divergence (MACD)
- Relative Strength Index (RSI)
- Average Directional Index (ADX)
Traders can use price trend direction to make buy or sell decisions, which is known as momentum trading. Momentum traders bet on the likelihood that the price of a security will continue to rise in a specific direction until the trend ends.
It is an approach to financial security analysis that involves using a variety of resources to determine the value of a public and non-public company using public, non-public, and non-material information. This data collected is then used to calculate the stock’s value, which helps the analyst recommend the stock to clients. The more information used to arrive at the valuation, the more accurate and comprehensive the valuation of financial securities. Mosaic Theory and Insider Trading are distinguished by a fine line. Because the method allows for the use of non-public information, there is a risk that an analyst will overstep the mark and use material, non-public information in the analysis, which is strictly prohibited under current laws. Analysts who collect information using this theory must reveal the data and methodology they use.
It is a theory that states stock market returns will follow the previous Friday’s trends when they open the following Monday. According to Monday effect, If the market rose on past Friday, it should rise again on upcoming Monday, whereas the opposite is likely if the market fell on Friday. This theory is frequently used in the stock market; it shows how previous Friday’s returns and prevailing patterns appear on Monday rather than any other day. As a result, if the market rose or fell the previous Friday, it will continue until Monday. The weekend effect is another name for the Monday effect.
Absolute vs. Relative Momentum
There are two main categories of momentum trading strategies that traders can use:
- Absolute momentum is a strategy that compares a security’s price to its historical performance. A trader should buy when the momentum is positive and sell when the momentum is negative when using an absolute momentum strategy.
- Relative momentum is concerned with comparing the performance of various securities and purchasing those with a higher rate of momentum.
A market anomaly is a price movement that deviates from the expected behaviour of the stock market. An anomaly is the difference in a stock’s performance from its expected price trajectory. Some financial anomalies appear only once and then vanish, whereas others appear repeatedly throughout historical chart analysis.
The four common explanations for market anomalies are as follows:
- unmeasured risk
- limits to arbitrage
- selection bias.
Anomalies can be divided into two types
- Time-series anomalies
- Cross-sectional anomalies