Correlation Between Great West and Needham Aggressive

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

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

Diversification Opportunities for Great West and Needham Aggressive

0.78

Correlation Coefficient

Great West  Needham Aggressive

Poor diversification

The 3 months correlation between Great and Needham is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Great West Large Cap 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 Great West 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 Great West Large Cap 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 Great West i.e., Great West and Needham Aggressive go up and down completely randomly.

Pair Corralation between Great West and Needham Aggressive

Assuming the 90 days horizon Great West is expected to generate 2.5 times less return on investment than Needham Aggressive. But when comparing it to its historical volatility, Great West Large Cap is 2.24 times less risky than Needham Aggressive. It trades about 0.11 of its potential returns per unit of risk. Needham Aggressive Growth is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,670  in Needham Aggressive Growth on September 12, 2024 and sell it today you would earn a total of  481.00  from holding Needham Aggressive Growth or generate 10.3% return on investment over 90 days.

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

Great West Large Cap  vs.  Needham Aggressive Growth

Great West Large

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Large Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Great West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Needham Aggressive Growth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Aggressive Growth are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Needham Aggressive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Great West and Needham Aggressive

The main advantage of trading using opposite Great West and Needham Aggressive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great West 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 Great West Large Cap 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.