Correlation Between Schwab Small-cap and Needham Aggressive

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

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

Diversification Opportunities for Schwab Small-cap and Needham Aggressive

0.64

Correlation Coefficient

Schwab Small-cap  Needham Aggressive

Poor diversification

The 3 months correlation between Schwab and Needham is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Equity 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 Schwab Small-cap 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 Schwab Small Cap Equity 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 Schwab Small-cap i.e., Schwab Small-cap and Needham Aggressive go up and down completely randomly.

Pair Corralation between Schwab Small-cap and Needham Aggressive

Assuming the 90 days horizon Schwab Small Cap Equity is expected to under-perform the Needham Aggressive. In addition to that, Schwab Small-cap is 1.25 times more volatile than Needham Aggressive Growth. It trades about -0.21 of its total potential returns per unit of risk. Needham Aggressive Growth is currently generating about -0.14 per unit of volatility. If you would invest  5,221  in Needham Aggressive Growth on December 4, 2024 and sell it today you would lose (694.00) from holding Needham Aggressive Growth or give up 13.29% of portfolio value over 90 days.

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

Schwab Small Cap Equity  vs.  Needham Aggressive Growth

Schwab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Small Cap Equity 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 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.

Needham Aggressive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Needham Aggressive 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 Schwab Small-cap and Needham Aggressive

The main advantage of trading using opposite Schwab Small-cap and Needham Aggressive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap 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 Schwab Small Cap Equity 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.