Correlation Between Needham Growth and Baron Opportunity

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

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

Diversification Opportunities for Needham Growth and Baron Opportunity

0.84

Correlation Coefficient

Needham Growth  Baron Opportunity

Very poor diversification

The 3 months correlation between Needham and Baron is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Needham Growth Fund and Baron Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Opportunity and Needham Growth 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 Growth Fund are associated (or correlated) with Baron Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Opportunity has no effect on the direction of Needham Growth i.e., Needham Growth and Baron Opportunity go up and down completely randomly.

Pair Corralation between Needham Growth and Baron Opportunity

Assuming the 90 days horizon Needham Growth is expected to generate 2.13 times less return on investment than Baron Opportunity. In addition to that, Needham Growth is 1.18 times more volatile than Baron Opportunity Fund. It trades about 0.03 of its total potential returns per unit of risk. Baron Opportunity Fund is currently generating about 0.08 per unit of volatility. If you would invest  2,633  in Baron Opportunity Fund on December 7, 2024 and sell it today you would earn a total of  1,741  from holding Baron Opportunity Fund or generate 66.12% return on investment over 90 days.

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

Needham Growth Fund  vs.  Baron Opportunity Fund

Needham Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Needham Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Baron Opportunity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baron Opportunity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Needham Growth and Baron Opportunity

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

The idea behind Needham Growth Fund and Baron Opportunity Fund 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.