Correlation Between GM and Needham Growth

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

By analyzing existing cross correlation between General Motors and Needham Growth, you can compare the effects of market volatilities on GM and Needham Growth 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 GM with a short position of Needham Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Needham Growth.

Diversification Opportunities for GM and Needham Growth

-0.68

Correlation Coefficient

GM  Needham Growth

Excellent diversification

The 3 months correlation between GM and Needham is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Needham Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Needham Growth and GM 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 General Motors are associated (or correlated) with Needham Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Needham Growth has no effect on the direction of GM i.e., GM and Needham Growth go up and down completely randomly.

Pair Corralation between GM and Needham Growth

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.64 times more return on investment than Needham Growth. However, GM is 1.64 times more volatile than Needham Growth. It trades about 0.04 of its potential returns per unit of risk. Needham Growth is currently generating about -0.08 per unit of risk. If you would invest  4,877  in General Motors on September 20, 2024 and sell it today you would earn a total of  238.00  from holding General Motors or generate 4.88% return on investment over 90 days.

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

General Motors  vs.  Needham Growth

General Motors

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Needham Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with GM and Needham Growth

The main advantage of trading using opposite GM and Needham Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Needham Growth 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 Growth will offset losses from the drop in Needham Growth's long position.

The idea behind General Motors and Needham Growth 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.