Nifty500 Low Volatility 50 Index aims to track the performance of the top 50 stocks within Nifty 500 which are selected based on their low volatility scores. Low Volatility is calculated as the inverse of standard deviation based on the previous 1-year price returns (log normal). Stock weights are based on a combination of the stock’s low volatility score and its free-float market capitalization.
Highlights –
- The index has a base date of April 01, 2005, with a base value of 1000
- Stocks forming part of the Nifty 500 index at the time of review are eligible for inclusion in the index
- Stocks that have scored low on liquidity parameters are excluded from the index
- 50 stocks from Nifty 500 based on low volatility scores are selected to be part of the index
- The weight of each stock in the index is based on the combination of stock’s low volatility score and its free float market capitalization.
- The index is reconstituted semi-annually (June, December)
Universe:
- Stocks forming part / going to be a part of the Nifty 500 index at the time of review.
- Constituents should have a minimum listing history of 1 year
Stock selection criteria:
- For each eligible stock, volatility is computed using 1 year trailing price (adjusted for corporate actions)
- Low Volatility is calculated as the inverse of standard deviation based on the previous 1 year price returns (log normal)
- Top 50 ranked stocks with low volatility are selected to be a part of the index
Weights and Capping:
- Weight of the stock in the index is derived by multiplying the free float market cap with low volatility score of that stock
- Each stock in the index is capped at the lower of 5% or 5 times the weight of the stock in the index based only on free float market capitalization
Index rebalancing & reconstitution:
- Index rebalancing and reconstitution will be done on a semi-annual basis in June and December using data ending last trading day of May and November respectively.
- Apart from the scheduled semi-annual review, additional ad-hoc reconstitution and rebalancing of the index shall be initiated in case any of the index constituents is removed from Nifty 500 index due to any corporate action (scheme of arrangement, delisting etc.) or suspension by the exchange etc.
Determining Low Volatility Score
Calculation of Low volatility score
Z score for Low Volatility of each selected stock is calculated as per the following formula
(x – μ)/ σ
Where,
x is low volatility of the stock (inverse of std. deviation based on the
previous 1 year price returns)
μ is mean value of the low volatility in the eligible universe
σ is std. deviation of low volatility in the eligible universe
Low Volatility score is calculated for all the selected security from the Z score as:
Low Volatility Score = (1+Z score) if Average Z score >0
(1- Z score)^-1 if Average Z score < 0
Source- NSE, https://www.niftyindices.com/Methodology/Method_NIFTY_Equity_Indices.pdf
-Calculator.svg)
ISO/IEC 27001:2022 Certified
