Correlation Between Smallcap Fund and Needham Small

Can any of the company-specific risk be diversified away by investing in both Smallcap Fund and Needham Small 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 Smallcap Fund and Needham Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smallcap Fund Fka and Needham Small Cap, you can compare the effects of market volatilities on Smallcap Fund and Needham Small 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 Smallcap Fund with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Fund and Needham Small.

Diversification Opportunities for Smallcap Fund and Needham Small

0.93

Correlation Coefficient

Smallcap Fund  Needham Small

Almost no diversification

The 3 months correlation between Smallcap and Needham is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Needham Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Needham Small Cap and Smallcap Fund 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 Smallcap Fund Fka are associated (or correlated) with Needham Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Needham Small Cap has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Needham Small go up and down completely randomly.

Pair Corralation between Smallcap Fund and Needham Small

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 0.65 times more return on investment than Needham Small. However, Smallcap Fund Fka is 1.53 times less risky than Needham Small. It trades about -0.09 of its potential returns per unit of risk. Needham Small Cap is currently generating about -0.12 per unit of risk. If you would invest  2,549  in Smallcap Fund Fka on December 22, 2024 and sell it today you would lose (164.00) from holding Smallcap Fund Fka or give up 6.43% of portfolio value over 90 days.

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

Smallcap Fund Fka  vs.  Needham Small Cap

Smallcap Fund Fka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Fund Fka has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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 technical and fundamental 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 Smallcap Fund and Needham Small

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

The idea behind Smallcap Fund Fka and Needham Small Cap 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.