Correlation Between Nasdaq 100 and Needham Small
Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 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 Nasdaq 100 and Needham Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Needham Small Cap, you can compare the effects of market volatilities on Nasdaq 100 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 Nasdaq 100 with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Needham Small.
Diversification Opportunities for Nasdaq 100 and Needham Small
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Nasdaq and Needham is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy 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 Nasdaq 100 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 Nasdaq 100 2x Strategy 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 Nasdaq 100 i.e., Nasdaq 100 and Needham Small go up and down completely randomly.
Pair Corralation between Nasdaq 100 and Needham Small
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.49 times more return on investment than Needham Small. However, Nasdaq 100 is 1.49 times more volatile than Needham Small Cap. It trades about 0.06 of its potential returns per unit of risk. Needham Small Cap is currently generating about 0.06 per unit of risk. If you would invest 53,655 in Nasdaq 100 2x Strategy on September 25, 2024 and sell it today you would earn a total of 4,109 from holding Nasdaq 100 2x Strategy or generate 7.66% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 98.44% |
Values | Daily Returns |
Nasdaq 100 2x Strategy vs. Needham Small Cap
Performance |
Timeline |
Nasdaq 100 2x |
Needham Small Cap |
Nasdaq 100 and Needham Small Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nasdaq 100 and Needham Small
The main advantage of trading using opposite Nasdaq 100 and Needham Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 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.Nasdaq 100 vs. Basic Materials Fund | ||
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Check out your portfolio center.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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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