Correlation Between Needham Small and Touchstone International

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

Diversification Opportunities for Needham Small and Touchstone International

-0.52

Correlation Coefficient

Needham Small  Touchstone International

Excellent diversification

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

Pair Corralation between Needham Small and Touchstone International

Assuming the 90 days horizon Needham Small Cap is expected to generate 2.14 times more return on investment than Touchstone International. However, Needham Small is 2.14 times more volatile than Touchstone International Equity. It trades about 0.03 of its potential returns per unit of risk. Touchstone International Equity is currently generating about -0.02 per unit of risk. If you would invest  1,656  in Needham Small Cap on September 20, 2024 and sell it today you would earn a total of  195.00  from holding Needham Small Cap or generate 11.78% 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.  Touchstone International Equit

Needham Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 3 (%) 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.

Touchstone International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone International Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Touchstone International

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

The idea behind Needham Small Cap and Touchstone International Equity 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..