Correlation Between Needham Aggressive and Federated Prudent

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

Diversification Opportunities for Needham Aggressive and Federated Prudent

-0.93

Correlation Coefficient

Needham Aggressive  Federated Prudent

Pay attention - limited upside

The 3 months correlation between Needham and Federated is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Needham Aggressive Growth and Federated Prudent Bear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Prudent Bear 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 Federated Prudent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Prudent Bear has no effect on the direction of Needham Aggressive i.e., Needham Aggressive and Federated Prudent go up and down completely randomly.

Pair Corralation between Needham Aggressive and Federated Prudent

Assuming the 90 days horizon Needham Aggressive Growth is expected to under-perform the Federated Prudent. In addition to that, Needham Aggressive is 1.89 times more volatile than Federated Prudent Bear. It trades about -0.1 of its total potential returns per unit of risk. Federated Prudent Bear is currently generating about 0.11 per unit of volatility. If you would invest  479.00  in Federated Prudent Bear on December 30, 2024 and sell it today you would earn a total of  32.00  from holding Federated Prudent Bear or generate 6.68% return on investment over 90 days.

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

Needham Aggressive Growth  vs.  Federated Prudent Bear

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.

Federated Prudent Bear

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Prudent Bear are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Federated Prudent may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Needham Aggressive and Federated Prudent

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

The idea behind Needham Aggressive Growth and Federated Prudent Bear 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.