On quora came across a cross hedging strategy … I did back test of the same following are the results.
Cross Hedge Strategy is this: Buy high weightage (in Nifty) stock futures and sell NIFTY futures till expiry and roll over again and again… I have used overhedging because of the round off. (For back test I chose hdfc, hdfc bank, hul, infy itc, reliance, tcs)
Assumptions: Current weightage in NIFTY. Beta calculated from individual stocks is included for the stock futures.
Have few questions…
Although appears to have a edge, not convinced of it.
What are your thoughts on the strategy ?Under what conditions, it would fail.
The strategy gives a good results only from Dec 2016(demonitization times). Why do you think it is so ?