Correlation Between Needham Growth and Sterling Capital

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

Diversification Opportunities for Needham Growth and Sterling Capital

0.39

Correlation Coefficient

Needham Growth  Sterling Capital

Weak diversification

The 3 months correlation between Needham and Sterling is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Needham Growth Fund and Sterling Capital Stratton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Stratton 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Stratton has no effect on the direction of Needham Growth i.e., Needham Growth and Sterling Capital go up and down completely randomly.

Pair Corralation between Needham Growth and Sterling Capital

Assuming the 90 days horizon Needham Growth Fund is expected to generate 0.78 times more return on investment than Sterling Capital. However, Needham Growth Fund is 1.29 times less risky than Sterling Capital. It trades about 0.08 of its potential returns per unit of risk. Sterling Capital Stratton is currently generating about -0.02 per unit of risk. If you would invest  4,558  in Needham Growth Fund on October 27, 2024 and sell it today you would earn a total of  1,895  from holding Needham Growth Fund or generate 41.58% return on investment over 90 days.

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

Needham Growth Fund  vs.  Sterling Capital Stratton

Needham Growth

Risk-Adjusted Performance

0 of 100

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 fairly strong technical and fundamental indicators, Needham Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sterling Capital Stratton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Stratton 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 fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Needham Growth and Sterling Capital

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

The idea behind Needham Growth Fund and Sterling Capital Stratton 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.