Correlation Between Needham Aggressive and Vanguard Small-cap

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

Diversification Opportunities for Needham Aggressive and Vanguard Small-cap

0.85

Correlation Coefficient

Needham Aggressive  Vanguard Small-cap

Very poor diversification

The 3 months correlation between Needham and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Needham Aggressive Growth and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small 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 Vanguard 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 Vanguard Small Cap has no effect on the direction of Needham Aggressive i.e., Needham Aggressive and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Needham Aggressive and Vanguard Small-cap

Assuming the 90 days horizon Needham Aggressive is expected to generate 1.27 times less return on investment than Vanguard Small-cap. In addition to that, Needham Aggressive is 1.39 times more volatile than Vanguard Small Cap Index. It trades about 0.13 of its total potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.23 per unit of volatility. If you would invest  30,891  in Vanguard Small Cap Index on September 11, 2024 and sell it today you would earn a total of  4,607  from holding Vanguard Small Cap Index or generate 14.91% 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.  Vanguard Small Cap Index

Needham Aggressive Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Aggressive Growth are ranked lower than 10 (%) 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.

Vanguard Small Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Needham Aggressive and Vanguard Small-cap

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

The idea behind Needham Aggressive Growth and Vanguard Small Cap Index 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.