Correlation Between State Street and Needham Aggressive

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

By analyzing existing cross correlation between State Street Global and Needham Aggressive Growth, you can compare the effects of market volatilities on State Street and Needham Aggressive 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 State Street with a short position of Needham Aggressive. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Needham Aggressive.

Diversification Opportunities for State Street and Needham Aggressive

-0.16

Correlation Coefficient

State Street  Needham Aggressive

Good diversification

The 3 months correlation between State and Needham is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding State Street Global and Needham Aggressive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Needham Aggressive Growth and State Street 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 State Street Global are associated (or correlated) with Needham Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Needham Aggressive Growth has no effect on the direction of State Street i.e., State Street and Needham Aggressive go up and down completely randomly.

Pair Corralation between State Street and Needham Aggressive

Assuming the 90 days horizon State Street Global is expected to under-perform the Needham Aggressive. But the mutual fund apears to be less risky and, when comparing its historical volatility, State Street Global is 1.96 times less risky than Needham Aggressive. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Needham Aggressive Growth is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,737  in Needham Aggressive Growth on September 16, 2024 and sell it today you would earn a total of  374.00  from holding Needham Aggressive Growth or generate 7.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

State Street Global  vs.  Needham Aggressive Growth

State Street Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Needham Aggressive Growth

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Aggressive Growth are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Needham Aggressive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with State Street and Needham Aggressive

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

The idea behind State Street Global and Needham Aggressive 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.