Correlation Between Heritage Fund and Needham Small

Can any of the company-specific risk be diversified away by investing in both Heritage Fund and Needham Small at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Heritage Fund and Needham Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Heritage Fund A and Needham Small Cap, you can compare the effects of market volatilities on Heritage Fund and Needham Small and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Heritage Fund with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heritage Fund and Needham Small.

Diversification Opportunities for Heritage Fund and Needham Small

0.44

Correlation Coefficient

Heritage Fund  Needham Small

Very weak diversification

The 3 months correlation between Heritage and Needham is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Fund A and Needham Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Needham Small Cap and Heritage Fund is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Heritage Fund A are associated (or correlated) with Needham Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Needham Small Cap has no effect on the direction of Heritage Fund i.e., Heritage Fund and Needham Small go up and down completely randomly.

Pair Corralation between Heritage Fund and Needham Small

Assuming the 90 days horizon Heritage Fund A is expected to under-perform the Needham Small. In addition to that, Heritage Fund is 2.55 times more volatile than Needham Small Cap. It trades about -0.25 of its total potential returns per unit of risk. Needham Small Cap is currently generating about 0.01 per unit of volatility. If you would invest  1,945  in Needham Small Cap on October 9, 2024 and sell it today you would earn a total of  3.00  from holding Needham Small Cap or generate 0.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Heritage Fund A  vs.  Needham Small Cap

Heritage Fund A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Fund A has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Needham Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Needham Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Heritage Fund and Needham Small

The main advantage of trading using opposite Heritage Fund and Needham Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage Fund position performs unexpectedly, Needham Small can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Needham Small will offset losses from the drop in Needham Small's long position.

The idea behind Heritage Fund A and Needham Small Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.