Next, we refined our results by excluding extreme returns (up and down returns of 2.5%) for each index. Let’s take a look at the second table showing the ranges containing the 95% probability of return. Even after extreme returns have been excluded, the range is still wider for the Nasdaq 100 (INR) than for the S&P 500 TR (INR). Although both of them were narrower than before.
So, although the Nasdaq 100 (INR) has a greater likelihood of getting higher long-term returns, it is likely to come with more volatility in the short term.
Diversify your risk
Just like the S&P 500, the US100 can also help you diversify your geographic investment risk outside the Indian market and into American stock indices and globally, to some extent.
Generally, diversification objectives are the finest achieved when you invest in assets whose movements are not so coordinated. It’s simply the way for the S&P 500 and Sensex.
Likewise for the Sensex and Nasdaq 100. The performance of the Sensex and Nasdaq 100 calendar years is very different from each other in almost all years. When one performs brilliantly, the other has not performed so good after all.
By investing in the Nasdaq 100 (or S&P 500) index, apart from staying invested in the Sensex, you can reduce the risk from investing purely in the Indian equity market.
Furthermore, like the S&P 500 (or any other American stock index), investing in the Nasdaq 100 also gives you the advantage of depreciating the rupee.