Correlation Between Ultra Nasdaq and Needham Small

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

By analyzing existing cross correlation between Ultra Nasdaq 100 Profunds and Needham Small Cap, you can compare the effects of market volatilities on Ultra Nasdaq 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 Ultra Nasdaq with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Nasdaq and Needham Small.

Diversification Opportunities for Ultra Nasdaq and Needham Small

0.87

Correlation Coefficient

Ultra Nasdaq  Needham Small

Very poor diversification

The 3 months correlation between Ultra and Needham is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Nasdaq 100 Profunds 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 Ultra Nasdaq 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 Ultra Nasdaq 100 Profunds 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 Ultra Nasdaq i.e., Ultra Nasdaq and Needham Small go up and down completely randomly.

Pair Corralation between Ultra Nasdaq and Needham Small

Assuming the 90 days horizon Ultra Nasdaq 100 Profunds is expected to generate 1.39 times more return on investment than Needham Small. However, Ultra Nasdaq is 1.39 times more volatile than Needham Small Cap. It trades about 0.12 of its potential returns per unit of risk. Needham Small Cap is currently generating about 0.04 per unit of risk. If you would invest  3,749  in Ultra Nasdaq 100 Profunds on September 19, 2024 and sell it today you would earn a total of  8,864  from holding Ultra Nasdaq 100 Profunds or generate 236.44% return on investment over 90 days.

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

Ultra Nasdaq 100 Profunds  vs.  Needham Small Cap

Ultra Nasdaq 100

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Nasdaq 100 Profunds are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Nasdaq showed solid returns over the last few months and may actually be approaching a breakup point.

Needham Small Cap

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 1 (%) 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.

Pair Trading with Ultra Nasdaq and Needham Small

The main advantage of trading using opposite Ultra Nasdaq and Needham Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Nasdaq 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 Ultra Nasdaq 100 Profunds 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.