Correlation Between Needham Small and Df Dent

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

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

Diversification Opportunities for Needham Small and Df Dent

0.9

Correlation Coefficient

Needham Small  Df Dent

Almost no diversification

The 3 months correlation between Needham and DFDSX is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Df Dent Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Df Dent Small and Needham Small 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 Small Cap are associated (or correlated) with Df Dent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Df Dent Small has no effect on the direction of Needham Small i.e., Needham Small and Df Dent go up and down completely randomly.

Pair Corralation between Needham Small and Df Dent

Assuming the 90 days horizon Needham Small Cap is expected to generate 1.55 times more return on investment than Df Dent. However, Needham Small is 1.55 times more volatile than Df Dent Small. It trades about 0.11 of its potential returns per unit of risk. Df Dent Small is currently generating about 0.11 per unit of risk. If you would invest  1,755  in Needham Small Cap on September 15, 2024 and sell it today you would earn a total of  176.00  from holding Needham Small Cap or generate 10.03% return on investment over 90 days.

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

Needham Small Cap  vs.  Df Dent Small

Needham Small Cap

Risk-Adjusted Performance

8 of 100

OK

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

Df Dent Small

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Needham Small and Df Dent

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

The idea behind Needham Small Cap and Df Dent Small 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.