Correlation Between Needham Aggressive and Small Cap
Can any of the company-specific risk be diversified away by investing in both Needham Aggressive and Small Cap 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 Needham Aggressive and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Needham Aggressive Growth and Small Cap Core, you can compare the effects of market volatilities on Needham Aggressive and Small Cap 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 Needham Aggressive with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Needham Aggressive and Small Cap.
Diversification Opportunities for Needham Aggressive and Small Cap
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Needham and Small is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Needham Aggressive Growth and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Needham Aggressive 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 Needham Aggressive Growth are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Needham Aggressive i.e., Needham Aggressive and Small Cap go up and down completely randomly.
Pair Corralation between Needham Aggressive and Small Cap
Assuming the 90 days horizon Needham Aggressive Growth is expected to generate 1.07 times more return on investment than Small Cap. However, Needham Aggressive is 1.07 times more volatile than Small Cap Core. It trades about 0.08 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.06 per unit of risk. If you would invest 3,093 in Needham Aggressive Growth on August 26, 2024 and sell it today you would earn a total of 1,969 from holding Needham Aggressive Growth or generate 63.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Needham Aggressive Growth vs. Small Cap Core
Performance |
| Timeline |
| Needham Aggressive Growth |
| Small Cap Core |
Needham Aggressive and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Needham Aggressive and Small Cap
The main advantage of trading using opposite Needham Aggressive and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Needham Aggressive position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.The idea behind Needham Aggressive Growth and Small Cap Core 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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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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