Correlation Between Needham Small and Kinetics Small

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

Diversification Opportunities for Needham Small and Kinetics Small

0.65

Correlation Coefficient

Needham Small  Kinetics Small

Poor diversification

The 3 months correlation between Needham and Kinetics is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap 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 Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Needham Small i.e., Needham Small and Kinetics Small go up and down completely randomly.

Pair Corralation between Needham Small and Kinetics Small

Assuming the 90 days horizon Needham Small is expected to generate 2.52 times less return on investment than Kinetics Small. But when comparing it to its historical volatility, Needham Small Cap is 1.52 times less risky than Kinetics Small. It trades about 0.11 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  14,919  in Kinetics Small Cap on September 15, 2024 and sell it today you would earn a total of  4,087  from holding Kinetics Small Cap or generate 27.39% return on investment over 90 days.

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

Needham Small Cap  vs.  Kinetics Small Cap

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.

Kinetics Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Needham Small and Kinetics Small

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

The idea behind Needham Small Cap and Kinetics Small Cap 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.