Correlation Between Needham Aggressive and American Funds

Can any of the company-specific risk be diversified away by investing in both Needham Aggressive and American Funds 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 American Funds 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 American Funds Capital, you can compare the effects of market volatilities on Needham Aggressive and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Needham Aggressive and American Funds.

Diversification Opportunities for Needham Aggressive and American Funds

0.21

Correlation Coefficient

Needham Aggressive  American Funds

Modest diversification

The 3 months correlation between Needham and American is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Needham Aggressive Growth and American Funds Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Capital 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Capital has no effect on the direction of Needham Aggressive i.e., Needham Aggressive and American Funds go up and down completely randomly.

Pair Corralation between Needham Aggressive and American Funds

Assuming the 90 days horizon Needham Aggressive Growth is expected to under-perform the American Funds. In addition to that, Needham Aggressive is 3.28 times more volatile than American Funds Capital. It trades about -0.05 of its total potential returns per unit of risk. American Funds Capital is currently generating about 0.28 per unit of volatility. If you would invest  6,890  in American Funds Capital on December 2, 2024 and sell it today you would earn a total of  394.00  from holding American Funds Capital or generate 5.72% return on investment over 90 days.

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

Needham Aggressive Growth  vs.  American Funds Capital

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.

American Funds Capital

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Capital are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, American Funds 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 American Funds

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

The idea behind Needham Aggressive Growth and American Funds Capital 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.