Correlation Between Needham Small and Baron Opportunity

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

Diversification Opportunities for Needham Small and Baron Opportunity

0.82

Correlation Coefficient

Needham Small  Baron Opportunity

Very poor diversification

The 3 months correlation between Needham and Baron is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Baron Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Opportunity 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 Baron Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Opportunity has no effect on the direction of Needham Small i.e., Needham Small and Baron Opportunity go up and down completely randomly.

Pair Corralation between Needham Small and Baron Opportunity

Assuming the 90 days horizon Needham Small is expected to generate 2.97 times less return on investment than Baron Opportunity. In addition to that, Needham Small is 1.19 times more volatile than Baron Opportunity Fund. It trades about 0.03 of its total potential returns per unit of risk. Baron Opportunity Fund is currently generating about 0.11 per unit of volatility. If you would invest  2,359  in Baron Opportunity Fund on September 20, 2024 and sell it today you would earn a total of  2,385  from holding Baron Opportunity Fund or generate 101.1% return on investment over 90 days.

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

Needham Small Cap  vs.  Baron Opportunity Fund

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 forward indicators, Needham Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Baron Opportunity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Opportunity Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Opportunity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Needham Small and Baron Opportunity

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

The idea behind Needham Small Cap and Baron Opportunity 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.