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, 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

0.99

Correlation Coefficient

Needham Small  Needham Growth

No risk reduction

The 3 months correlation between Needham and Needham is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Needham Growth 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 Cap is expected to under-perform the Needham Growth. In addition to that, Needham Small is 1.02 times more volatile than Needham Growth. It trades about -0.15 of its total potential returns per unit of risk. Needham Growth is currently generating about -0.14 per unit of volatility. If you would invest  6,422  in Needham Growth on December 28, 2024 and sell it today you would lose (1,024) from holding Needham Growth or give up 15.95% of portfolio value over 90 days.

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

Needham Small Cap  vs.  Needham Growth

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 forward 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.

Needham Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Needham Growth 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 forward 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.

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 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.