Correlation Between Needham Aggressive and Davidson Multi

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

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

Diversification Opportunities for Needham Aggressive and Davidson Multi

0.83

Correlation Coefficient

Needham Aggressive  Davidson Multi

Very poor diversification

The 3 months correlation between Needham and Davidson is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Needham Aggressive Growth and Davidson Multi Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davidson Multi Cap and Needham Aggressive 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 Needham Aggressive Growth are associated (or correlated) with Davidson Multi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davidson Multi Cap has no effect on the direction of Needham Aggressive i.e., Needham Aggressive and Davidson Multi go up and down completely randomly.

Pair Corralation between Needham Aggressive and Davidson Multi

Assuming the 90 days horizon Needham Aggressive Growth is expected to under-perform the Davidson Multi. In addition to that, Needham Aggressive is 2.0 times more volatile than Davidson Multi Cap Equity. It trades about -0.07 of its total potential returns per unit of risk. Davidson Multi Cap Equity is currently generating about -0.06 per unit of volatility. If you would invest  3,447  in Davidson Multi Cap Equity on December 21, 2024 and sell it today you would lose (117.00) from holding Davidson Multi Cap Equity or give up 3.39% of portfolio value over 90 days.

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

Needham Aggressive Growth  vs.  Davidson Multi Cap Equity

Needham Aggressive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Needham Aggressive 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.

Davidson Multi Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davidson Multi Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Davidson Multi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Needham Aggressive and Davidson Multi

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

The idea behind Needham Aggressive Growth and Davidson Multi Cap Equity 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.