Monday, July 11, 2016

Statistical Analysis of the SENSEX - Probability distribution of Local minima

So I have decided to revive my blog but as I now have a toddler who just yanked the power cable from my laptop..I will have to be quick with this article :)

Recently, while I was debating the pros and cons of Mutual fund investments with a few of my colleagues, the topic of "timing" the market came to be discussed. While it is common knowledge that it is impossible to predict the ups and downs of the market indices (like the SENSEX) on a day to day basis, I felt that a long term data analysis should yield something interesting. Even purely random events have a Gaussian distribution after all.

So I pulled up the last 37 years of daily closing values of the SENSEX from here and did the following
1) Found the minimum values of the Index on a monthly basis
2) Found the date and the day of the week that minimum value was reached

The probability distribution of the SENSEX hitting the lowest value in a month is as depicted below where the first chart illustrates the Day of the week probabilities while the second displays the Day of the month distribution.









Interesting Data Analytic conclusions
1)  The 1st day of the Month and Wednesdays are when the probability of the SENSEX being the lowest are the highest
2) The 15th of the Month and Fridays are the converse

I havent really got down to thinking about why this is the way it is but probably a lot of investments like SIPs get auto debited and channeled to the market in the beginning of the month causing a dip in prices but the data reveals that if you are dealing with index funds its better (statistically speaking) to buy during the first week of the month and sell by the 15th to maximize good return probability.

NOTE: I shall not be responsible for any losses incurred by anyone treating the above data analysis as a Stock tip. I am still recovering from my own :)


3 comments:

Unknown said...

Hey sam..interesting...nothing rings a bell as to why 37 years data?

SamWrath said...

Hi Golu... no specific reason for the 37 year dataset..the website I pulled the data from needed a date range

Harsha S Rao said...

Thanks buddy. I was looking for this exact analysis for a very long time!!