- Wealth PMS (50L+)
Diwali marks the beginning of the Hindu New Year and its widely believed that trading on this day brings wealth and prosperity throughout the year.
On this day exchanges in India facilitate one hour long trading called the ‘Muhurat Trading Hour‘, for traders and investors to make stock purchases.
Though testing traditions statistically was never a great idea, but still the quant in me, tempted me to test this hypothesis. – Are the odds in your favor if you invest on Diwali?
We looked at two time frames.
90 Days and 365 Days
If you have a short term view, may be you would hold a position at the max for a quarter, and if you are looking at a longer time frame you would hold on to your investments for year. That’s the assumption.
Essentially, we are looking to see if there is any statistical edge in Investing on Diwali day vs. Rest of the year.
You have 4 choices here.
What does the data tell us?
We looked at data for the past 24 years, to calculate median returns from any day of the year till, + 90 or +365 days. We also calculated median returns from Diwali day for the next + 90 or + 365 days.
On the vertical axis you have median returns in percentage, and on the horizontal axis we have months of the year.
Lets first start with the idea of investing any day of the year.
The Green line/Green shaded area shows the median returns if you invested for 90 days starting at any given point in a year. For example if you look at the October to November month you would see that the Green shaded area is above the Yellow dashed line (Median Returns for Diwali Day).
What that means is – If you invest every year in October with a holding period of 90 days the odds are in your favor to come out positive (above Diwali 90 day median returns ie). Likewise, if you look at the dip around March, it means if you invest for a 90 day period beginning of March every year, the odds don’t seem to be in your favor.
The Grey line/Grey shaded area shows the median returns if you invested for 365 days starting at any given point in a year. For example Investing with a 1 year horizon around September to October have better odds of generating above median returns.
Diwali day Odds
The two horizontal dashed lines that run across the chart represent the median gains/losses if you invested for 90 (Yellow) or 365 days (Orange) starting Diwali day of a year.
The median returns from Diwali day to next 90 days is 4.71 %
The median returns from Diwali day to next 365 days is 9.32 %
In short – Diwali day investing odds are not bad at all both for a 90 day or a 1 Year horizon.
If you have a 90 day horizon, you are better off with starting any day between 1st to 2nd week of October, or perhaps during Navratri.
And if you have a 365 day horizon, avoid August and February months, almost all of April to July has a similar odds, you do have a slight edge if you start in the beginning of October and Diwali day is not bad either.
But you know what, stats aside, irrespective of what festival you celebrate, you are always better off investing systematically while keeping an eye on asset allocation, the odds in the long run would work in your favor.
So, here’s wishing you good luck and a year full of pleasant surprises.
As always Diwali for me is about Food, Family, & Fun (In that order). Investing & Trading can wait.
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