Between the Nifty 50 Vs Nifty 50 Equal Weight Index, which is a better Index for risk-adjusted returns? Let us try to understand with 25 years of past data.
The Nifty 50 Equal Weight Index consists of the 50 stocks with the highest market capitalization, all having equal representation in the index. On the other hand, the widely used Nifty 50 is based on market capitalization exposure. This article explores the effects of equal weighting.
Market capitalization is determined by multiplying the total number of outstanding shares by the current price per share. The Nifty 50 consists of the 50 stocks with the highest market capitalization. If the total market capitalization of the top 50 stocks amounts to Rs. 50,000 Crores and the highest market capitalization of an individual stock (such as company XYZ) is Rs. 10,000 Crores, then XYZ stock will represent 20% (10,000/50,000) of the market capitalization-weighted index, and so forth.
On the other hand, the Equal Weight…