Correlation Between Needham Small and Prudential Short

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

Diversification Opportunities for Needham Small and Prudential Short

-0.52

Correlation Coefficient

Needham Small  Prudential Short

Excellent diversification

The 3 months correlation between Needham and Prudential is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration 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 Prudential Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Duration has no effect on the direction of Needham Small i.e., Needham Small and Prudential Short go up and down completely randomly.

Pair Corralation between Needham Small and Prudential Short

Assuming the 90 days horizon Needham Small Cap is expected to under-perform the Prudential Short. In addition to that, Needham Small is 10.13 times more volatile than Prudential Short Duration. It trades about -0.12 of its total potential returns per unit of risk. Prudential Short Duration is currently generating about 0.19 per unit of volatility. If you would invest  824.00  in Prudential Short Duration on December 22, 2024 and sell it today you would earn a total of  17.00  from holding Prudential Short Duration or generate 2.06% return on investment over 90 days.

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

Needham Small Cap  vs.  Prudential Short Duration

Needham Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Needham Small Cap 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.

Prudential Short Duration

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Short Duration are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Short 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 Small and Prudential Short

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

The idea behind Needham Small Cap and Prudential Short Duration 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..