Correlation Between Needham Small and 70082LAB3

Can any of the company-specific risk be diversified away by investing in both Needham Small and 70082LAB3 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 70082LAB3 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 US70082LAB36, you can compare the effects of market volatilities on Needham Small and 70082LAB3 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 70082LAB3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Needham Small and 70082LAB3.

Diversification Opportunities for Needham Small and 70082LAB3

0.61

Correlation Coefficient

Needham Small  70082LAB3

Poor diversification

The 3 months correlation between Needham and 70082LAB3 is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and US70082LAB36 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US70082LAB36 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 70082LAB3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US70082LAB36 has no effect on the direction of Needham Small i.e., Needham Small and 70082LAB3 go up and down completely randomly.

Pair Corralation between Needham Small and 70082LAB3

Assuming the 90 days horizon Needham Small is expected to generate 83.61 times less return on investment than 70082LAB3. But when comparing it to its historical volatility, Needham Small Cap is 41.47 times less risky than 70082LAB3. It trades about 0.03 of its potential returns per unit of risk. US70082LAB36 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,050  in US70082LAB36 on September 20, 2024 and sell it today you would earn a total of  1,875  from holding US70082LAB36 or generate 26.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	44.15%
Values	Daily Returns

Needham Small Cap  vs.  US70082LAB36

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.

US70082LAB36

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US70082LAB36 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 70082LAB3 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 70082LAB3

The main advantage of trading using opposite Needham Small and 70082LAB3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Needham Small position performs unexpectedly, 70082LAB3 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 70082LAB3 will offset losses from the drop in 70082LAB3's long position.

The idea behind Needham Small Cap and US70082LAB36 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.