Correlation Between Needham Small and Prudential Jennison

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

Diversification Opportunities for Needham Small and Prudential Jennison

-0.22

Correlation Coefficient

Needham Small  Prudential Jennison

Very good diversification

The 3 months correlation between Needham and Prudential is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Prudential Jennison Internatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison 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 Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison has no effect on the direction of Needham Small i.e., Needham Small and Prudential Jennison go up and down completely randomly.

Pair Corralation between Needham Small and Prudential Jennison

Assuming the 90 days horizon Needham Small Cap is expected to generate 1.8 times more return on investment than Prudential Jennison. However, Needham Small is 1.8 times more volatile than Prudential Jennison International. It trades about 0.02 of its potential returns per unit of risk. Prudential Jennison International is currently generating about -0.11 per unit of risk. If you would invest  1,844  in Needham Small Cap on September 29, 2024 and sell it today you would earn a total of  29.00  from holding Needham Small Cap or generate 1.57% return on investment over 90 days.

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

Needham Small Cap  vs.  Prudential Jennison Internatio

Needham Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Needham Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Jennison

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Jennison International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Prudential Jennison is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Needham Small and Prudential Jennison

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

The idea behind Needham Small Cap and Prudential Jennison International 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.