The alpha tracker

If Nifty is down 7.4 per cent for the year, the real stock picks were the ones which delivered more than 10 per cent (assuming trading costs). If you do not track, trade or make systems to track and isolate this alpha, your toolbox is lacking an important instrument. Hard work, volatility and emotion and if you end up with stocks that delivered negative 10 per cent against Nifty year-to-date, it is time for review.

If alpha was so important, then why don’t newspapers and websites publish it? Why alpha gets featured annually but not as intraday or daily event? Why don’t we carry alpha trackers every day along with the top movers, top losers and top volume picks? What stops us from doing it? “I am not an investor, I am a leveraged trader, I play for 100 points on Nifty,” says a trader. Even as a derivative trader, don’t you need to know which one of your futures will deliver more returns than the other? Which short will make more money, Tata Motors or Maruti? Which long will make more money TCS or Infosys? The trader repeats, “I specialise on Nifty and am happy with 24 per cent leveraged returns for the year”. It is not hard to deliver gains when markets move up, it is harder to attempt to deliver more return per unit of risk or in other words deliver alpha. Tata motors delivered 10 per cent more than Nifty year-to-date.

The importance of alpha

Outdoing markets
Now the trader may say, “Who knows?” Nobody knows what is going to happen, then why do we claim to get excited about gains early part of the year, unaware of what lies ahead in the year. The good thing about being in performers whether on the long or the short side is that we burn less and we deliver more. Orpheus is in no way trying to dissuade you from doing what you are already doing profitably and consistently, what we are telling you is about confluence, combining ideas. Shorting something that gives 10 per cent more than the Nifty is worth the effort.

Above this, it is not that difficult. On January 15 we said, “Among stocks, the top performers for the week are auto stocks viz. Tata Motors, M&M. Four of the top 14 ranked stocks are metal majors (Tata Steel, Sterlite, Sail and Jindal Steel). The top ten also includes the tech majors viz. Infosys, TCS and Wipro. All these top ranked stocks are the potential underperformers for the weeks ahead and should be excellent short opportunities, now that we have reinforced our topping scenario for the market”.

Orpheus’ top shorts delivered and did not disappoint. Tata Motors (-16.6 per cent), Sterlite (-14.1 per cent), Sail (-11.4 per cent), Mahindra (-10 per cent), Jindal Steel (-9.5 per cent), Tisco (-8.8 per cent), Infosys (-7 per cent), Wipro (-5.6 per cent), TCS (0.2 per cent). However, what we take pride in is the fact that netted for the Nifty losses of 7.4 per cent for the same period, 6 of the 9 picks delivered. More interesting is the long side. In the same report we said “Reliance Infrastructure, Maruti and HDFC are at the bottom of numeric ranking and remain the top potential outperformers in the weeks ahead.” Barring Maruti which was down 12 per cent both Reliance Infrastructure and HDFC gained (alpha) 8.2 per cent and 1.5 per cent against the Nifty.
 

GAINING FROM ALPHA
	Beta	Alpha
Tata Motors	-16.6%	-9.2%
Ranbaxy	-15.3%	-7.9%
Sbi	-15.0%	-7.6%
Larsen	-14.6%	-7.2%
Sterlite	-14.1%	-6.7%
Suzlon	-14.0%	-6.6%
Reliance Capital	-12.4%	-5.0%
Maruti	-12.0%	-4.6%
DLF	-11.9%	-4.5%
Sail	-11.4%	-4.0%
BPCL	-10.9%	-3.5%
HLL	-10.7%	-3.3%
JAIA	-10.6%	-3.2%
Hindalco	-10.6%	-3.2%
Mahindra	-10.0%	-2.6%
United Tech	-9.9%	-2.5%
Jindal Steel	-9.5%	-2.1%
NTPC.NS	-9.5%	-2.1%
Tisco	-8.8%	-1.5%
Cairn India	-8.3%	-0.9%
Nifty	-7.4%	0.0%
Infosys	-7.0%	0.4%
Hero Honda	-6.6%	0.8%
Tata Power	-6.5%	0.9%
Bharti	-6.5%	0.9%
ACC	-6.2%	1.2%
HCL Technology	-6.0%	1.4%
HDFC	-5.9%	1.5%
ICICI Bank	-5.8%	1.6%
Wipro	-5.6%	1.8%
Reliance	-5.2%	2.2%
Reliance Power	-5.1%	2.3%
Cipla	-5.0%	2.4%
HDFC Bank	-4.9%	2.5%
ONGC	-4.5%	2.9%
PNB	-4.2%	3.2%
Ambuja	-2.7%	4.7%
IDFC	-2.3%	5.1%
Reliance