Correlation Between Microsoft and Needham Small
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Needham Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Needham Small Cap, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Needham Small.
Diversification Opportunities for Microsoft and Needham Small
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Needham is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Needham Small go up and down completely randomly.
Pair Corralation between Microsoft and Needham Small
Given the investment horizon of 90 days Microsoft is expected to generate 1.78 times less return on investment than Needham Small. But when comparing it to its historical volatility, Microsoft is 1.43 times less risky than Needham Small. It trades about 0.19 of its potential returns per unit of risk. Needham Small Cap is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 1,867 in Needham Small Cap on September 1, 2024 and sell it today you would earn a total of 156.00 from holding Needham Small Cap or generate 8.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Needham Small Cap
Performance |
| Timeline |
| Microsoft |
| Needham Small Cap |
Microsoft and Needham Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Needham Small
The main advantage of trading using opposite Microsoft and Needham Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Needham Small vs. Needham Small Cap | Needham Small vs. Needham Aggressive Growth | Needham Small vs. Needham Aggressive Growth | Needham Small vs. Ultramid Cap Profund Ultramid Cap |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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