Correlation Between Aggressive Investors and Needham Small

Can any of the company-specific risk be diversified away by investing in both Aggressive Investors 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 Aggressive Investors and Needham Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aggressive Investors 1 and Needham Small Cap, you can compare the effects of market volatilities on Aggressive Investors 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 Aggressive Investors with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Investors and Needham Small.

Diversification Opportunities for Aggressive Investors and Needham Small

0.81

Correlation Coefficient

Aggressive Investors  Needham Small

Very poor diversification

The 3 months correlation between Aggressive and Needham is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Investors 1 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 Aggressive Investors 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 Aggressive Investors 1 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 Aggressive Investors i.e., Aggressive Investors and Needham Small go up and down completely randomly.

Pair Corralation between Aggressive Investors and Needham Small

Assuming the 90 days horizon Aggressive Investors 1 is expected to generate 0.55 times more return on investment than Needham Small. However, Aggressive Investors 1 is 1.81 times less risky than Needham Small. It trades about 0.29 of its potential returns per unit of risk. Needham Small Cap is currently generating about 0.11 per unit of risk. If you would invest  8,818  in Aggressive Investors 1 on September 13, 2024 and sell it today you would earn a total of  1,452  from holding Aggressive Investors 1 or generate 16.47% return on investment over 90 days.

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

Aggressive Investors 1  vs.  Needham Small Cap

Aggressive Investors

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors showed solid returns over the last few months and may actually be approaching a breakup point.

Needham Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 8 (%) 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 January 2025.

Pair Trading with Aggressive Investors and Needham Small

The main advantage of trading using opposite Aggressive Investors and Needham Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aggressive Investors 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 Aggressive Investors 1 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.