Correlation Between Needham Small and Floating Rate

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

Diversification Opportunities for Needham Small and Floating Rate

-0.31

Correlation Coefficient

Needham Small  Floating Rate

Very good diversification

The 3 months correlation between Needham and Floating is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Floating Rate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate 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 Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate has no effect on the direction of Needham Small i.e., Needham Small and Floating Rate go up and down completely randomly.

Pair Corralation between Needham Small and Floating Rate

Assuming the 90 days horizon Needham Small Cap is expected to under-perform the Floating Rate. In addition to that, Needham Small is 12.01 times more volatile than Floating Rate Fund. It trades about -0.12 of its total potential returns per unit of risk. Floating Rate Fund is currently generating about 0.08 per unit of volatility. If you would invest  802.00  in Floating Rate Fund on December 21, 2024 and sell it today you would earn a total of  6.00  from holding Floating Rate Fund or generate 0.75% return on investment over 90 days.

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

Needham Small Cap  vs.  Floating Rate Fund

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.

Floating Rate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Floating Rate 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 Floating Rate

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

The idea behind Needham Small Cap and Floating Rate Fund 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.