Correlation Between Needham Small and Morningstar International
Can any of the company-specific risk be diversified away by investing in both Needham Small and Morningstar International 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 Small and Morningstar International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Needham Small Cap and Morningstar International Equity, you can compare the effects of market volatilities on Needham Small and Morningstar International 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 Small with a short position of Morningstar International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Needham Small and Morningstar International.
Diversification Opportunities for Needham Small and Morningstar International
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Needham and Morningstar is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Morningstar International Equi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar International and Needham Small 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 Small Cap are associated (or correlated) with Morningstar International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar International has no effect on the direction of Needham Small i.e., Needham Small and Morningstar International go up and down completely randomly.
Pair Corralation between Needham Small and Morningstar International
Assuming the 90 days horizon Needham Small Cap is expected to generate 2.03 times more return on investment than Morningstar International. However, Needham Small is 2.03 times more volatile than Morningstar International Equity. It trades about 0.01 of its potential returns per unit of risk. Morningstar International Equity is currently generating about 0.02 per unit of risk. If you would invest 1,799 in Needham Small Cap on November 5, 2024 and sell it today you would earn a total of 84.00 from holding Needham Small Cap or generate 4.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Needham Small Cap vs. Morningstar International Equi
Performance |
| Timeline |
| Needham Small Cap |
| Morningstar International |
Needham Small and Morningstar International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Needham Small and Morningstar International
The main advantage of trading using opposite Needham Small and Morningstar International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Needham Small position performs unexpectedly, Morningstar International 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 Morningstar International will offset losses from the drop in Morningstar International's long position.| Needham Small vs. Needham Aggressive Growth | Needham Small vs. Needham Growth Fund | Needham Small vs. Baron Opportunity Fund | Needham Small vs. Jacob Micro 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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