Correlation Between Needham Aggressive and Royce Micro

Can any of the company-specific risk be diversified away by investing in both Needham Aggressive and Royce Micro 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 Royce Micro 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 Royce Micro Cap Fund, you can compare the effects of market volatilities on Needham Aggressive and Royce Micro 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 Royce Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Needham Aggressive and Royce Micro.

Diversification Opportunities for Needham Aggressive and Royce Micro

0.81

Correlation Coefficient

Needham Aggressive  Royce Micro

Very poor diversification

The 3 months correlation between Needham and Royce is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Needham Aggressive Growth and Royce Micro Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Micro Cap 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 Royce Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Micro Cap has no effect on the direction of Needham Aggressive i.e., Needham Aggressive and Royce Micro go up and down completely randomly.

Pair Corralation between Needham Aggressive and Royce Micro

Assuming the 90 days horizon Needham Aggressive Growth is expected to generate 1.16 times more return on investment than Royce Micro. However, Needham Aggressive is 1.16 times more volatile than Royce Micro Cap Fund. It trades about 0.13 of its potential returns per unit of risk. Royce Micro Cap Fund is currently generating about 0.03 per unit of risk. If you would invest  4,981  in Needham Aggressive Growth on September 12, 2024 and sell it today you would earn a total of  170.00  from holding Needham Aggressive Growth or generate 3.41% return on investment over 90 days.

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

Needham Aggressive Growth  vs.  Royce Micro Cap Fund

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.

Royce Micro Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Micro Cap Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Royce Micro showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Needham Aggressive and Royce Micro

The main advantage of trading using opposite Needham Aggressive and Royce Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Needham Aggressive position performs unexpectedly, Royce Micro 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 Royce Micro will offset losses from the drop in Royce Micro's long position.

The idea behind Needham Aggressive Growth and Royce Micro Cap Fund 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.