Correlation Between Needham Small and Icon Information

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

Diversification Opportunities for Needham Small and Icon Information

0.89

Correlation Coefficient

Needham Small  Icon Information

Very poor diversification

The 3 months correlation between Needham and Icon is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Icon Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Information Tec 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 Icon Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Information Tec has no effect on the direction of Needham Small i.e., Needham Small and Icon Information go up and down completely randomly.

Pair Corralation between Needham Small and Icon Information

Assuming the 90 days horizon Needham Small Cap is expected to under-perform the Icon Information. In addition to that, Needham Small is 1.51 times more volatile than Icon Information Technology. It trades about -0.1 of its total potential returns per unit of risk. Icon Information Technology is currently generating about -0.11 per unit of volatility. If you would invest  1,439  in Icon Information Technology on December 20, 2024 and sell it today you would lose (112.00) from holding Icon Information Technology or give up 7.78% of portfolio value over 90 days.

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

Needham Small Cap  vs.  Icon Information Technology

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Icon Information Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Icon Information Technology has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Needham Small and Icon Information

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

The idea behind Needham Small Cap and Icon Information Technology 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.