Correlation Between Needham Small and Balanced Strategy

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

Diversification Opportunities for Needham Small and Balanced Strategy

0.45

Correlation Coefficient

Needham Small  Balanced Strategy

Very weak diversification

The 3 months correlation between Needham and Balanced is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy 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 Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Needham Small i.e., Needham Small and Balanced Strategy go up and down completely randomly.

Pair Corralation between Needham Small and Balanced Strategy

Assuming the 90 days horizon Needham Small Cap is expected to generate 3.74 times more return on investment than Balanced Strategy. However, Needham Small is 3.74 times more volatile than Balanced Strategy Fund. It trades about 0.12 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.07 per unit of risk. If you would invest  1,756  in Needham Small Cap on September 18, 2024 and sell it today you would earn a total of  196.00  from holding Needham Small Cap or generate 11.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Needham Small Cap  vs.  Balanced Strategy Fund

Needham Small Cap

Risk-Adjusted Performance

9 of 100

OK

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

Balanced Strategy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Strategy Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced Strategy 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 Balanced Strategy

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

The idea behind Needham Small Cap and Balanced Strategy 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.