Index vs NIFTY ratio trade
This is a relative-value trade between two indices. Banking stocks make up a large part of NIFTY, so BANKNIFTY and NIFTY usually move together, and their price ratio drifts within a range. When the ratio of their futures stretches two standard deviations from its one-year average, the strategy buys the index that looks cheap and sells the other, holding both in one position until the ratio returns.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
The sample is too small to judge which market conditions suit this trade: it logged only 6 trades in the year, and no condition had the 8 needed for a reading. For the record, the one trade entered on a choppy, wide-range session made ₹61,996, while 4 trades entered on quiet sessions lost ₹30,522. Because one leg is long and the other short, the trade bets on BANKNIFTY moving relative to NIFTY rather than on the market's direction, but value-matching in whole lots never removes market exposure completely.
About this strategy
- Each evening, divide BANKNIFTY's near-month futures close by NIFTY's and take the log of the ratio.
- Compare it with the last 250 sessions to get a z-score.
- If the z-score is -2 or lower, buy 1 lot of BANKNIFTY futures and sell the NIFTY lots closest in contract value at 09:20 next session; at +2 or higher, do the reverse. Both legs sit in one position.
- Close at 09:20 after the z-score returns to 0 (target), reaches 3.5 (stop), or after 20 sessions.
- On monthly expiry both legs close at 15:15 and reopen in the next month at 09:20 the following session.
- A second entry mode, support_low, instead trades the ratio near its 500-session low or high, with a 5% target and 2.5% stop on the ratio.
Why traders use it
Many traders chart BANKNIFTY against NIFTY to judge whether banks are leading or lagging the market. When the gap looks extreme, a ratio trade lets them bet on it narrowing without taking a strong view on the market's direction, since a broad rise or fall lifts or drops both legs. Using two liquid index futures keeps slippage lower than in stock pairs, and the idea extends to any F&O stock against NIFTY.
The year in plain words
On default settings from 1 Oct 2025 to 30 Sep 2026 the ratio trade made ₹26,372 before costs and ₹22,219 after ₹20 per order and bid-ask slippage, from just 6 trades. Only 2 of them won, but the best one, in March, made ₹61,996 while the largest loss was ₹18,598; the profit factor was 1.58 before costs. No trade reached its z-score target or stop: three ended at a monthly roll and three at the 20-session time exit. February lost ₹35,500 and the drawdown reached ₹40,334. With so few trades, the result rests largely on one winner.
What the settings do
Risks
- The ratio can trend for months when banks lead or lag the market, and the 3.5 z-score stop is wide.
- Whole-lot value matching leaves some net long or short market exposure on every trade.
- With only a few trades a year, one or two outcomes decide the whole result, as the ₹61,996 winner did here.
- Monthly rolls close and reopen both legs, adding orders, slippage and an overnight gap with no position.
Who it suits
Traders who already follow the BANKNIFTY to NIFTY relationship, have margin for two index futures positions at once, and are comfortable with very few trades a year and results driven by a handful of outcomes.
Questions traders ask
Is the BANKNIFTY vs NIFTY ratio trade profitable?
In this test it made ₹26,372 before costs and ₹22,219 after ₹20 per order and bid-ask slippage from 1 Oct 2025 to 30 Sep 2026, with statutory charges excluded. That came from only 6 trades, and one winner of ₹61,996 did most of the work, so the evidence is thin. Past results do not guarantee future ones.
How many NIFTY lots hedge one BANKNIFTY lot?
The code values one BANKNIFTY lot (30 units) at the current futures price and sells the number of NIFTY lots (65 units each) whose contract value is closest, with at least one. The number is recomputed at every entry and roll from that day's prices and lot sizes, so it can change over time.
Can I use a stock instead of BANKNIFTY?
Yes. The numerator can be any F&O stock or sector index with futures, traded against NIFTY futures. The same z-score rules then decide when the stock looks stretched relative to the market. Results for other symbols would need their own backtest.
Why did no trade hit its target or stop?
In this year the ratio did not return to its average or stretch to 3.5 deviations before the trade was cut. Three trades ended at a monthly roll, where both legs are closed at 15:15 on expiry day, and three at the 20-session time limit.