Correlation Between Needham Small and Small Pany

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

Diversification Opportunities for Needham Small and Small Pany

0.78

Correlation Coefficient

Needham Small  Small Pany

Poor diversification

The 3 months correlation between Needham and Small is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth 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 Small Pany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Needham Small i.e., Needham Small and Small Pany go up and down completely randomly.

Pair Corralation between Needham Small and Small Pany

Assuming the 90 days horizon Needham Small is expected to generate 7.06 times less return on investment than Small Pany. But when comparing it to its historical volatility, Needham Small Cap is 1.12 times less risky than Small Pany. It trades about 0.03 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,099  in Small Pany Growth on September 21, 2024 and sell it today you would earn a total of  518.00  from holding Small Pany Growth or generate 47.13% 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.  Small Pany Growth

Needham Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Needham Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Pany Growth

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Small Pany showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Needham Small and Small Pany

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

The idea behind Needham Small Cap and Small Pany Growth 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.