Correlation Between Needham Small and Needham Growth

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

Diversification Opportunities for Needham Small and Needham Growth

-0.19

Correlation Coefficient

Needham Small  Needham Growth

Good diversification

The 3 months correlation between Needham and Needham is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Needham Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Needham 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 Needham Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Needham Growth has no effect on the direction of Needham Small i.e., Needham Small and Needham Growth go up and down completely randomly.

Pair Corralation between Needham Small and Needham Growth

Assuming the 90 days horizon Needham Small is expected to generate 1.06 times less return on investment than Needham Growth. In addition to that, Needham Small is 1.07 times more volatile than Needham Growth Fund. It trades about 0.04 of its total potential returns per unit of risk. Needham Growth Fund is currently generating about 0.04 per unit of volatility. If you would invest  5,611  in Needham Growth Fund on September 20, 2024 and sell it today you would earn a total of  785.00  from holding Needham Growth Fund or generate 13.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Needham Small Cap  vs.  Needham Growth 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.

Needham Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Needham Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Needham Growth 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 Needham Growth

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

The idea behind Needham Small Cap and Needham Growth 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.