Correlation Between 70082LAB3 and Needham Small

Can any of the company-specific risk be diversified away by investing in both 70082LAB3 and Needham Small 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 70082LAB3 and Needham Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between US70082LAB36 and Needham Small Cap, you can compare the effects of market volatilities on 70082LAB3 and Needham Small 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 70082LAB3 with a short position of Needham Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of 70082LAB3 and Needham Small.

Diversification Opportunities for 70082LAB3 and Needham Small

0.62

Correlation Coefficient

70082LAB3  Needham Small

Poor diversification

The 3 months correlation between 70082LAB3 and Needham is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding US70082LAB36 and Needham Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Needham Small Cap and 70082LAB3 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 US70082LAB36 are associated (or correlated) with Needham Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Needham Small Cap has no effect on the direction of 70082LAB3 i.e., 70082LAB3 and Needham Small go up and down completely randomly.

Pair Corralation between 70082LAB3 and Needham Small

Assuming the 90 days trading horizon 70082LAB3 is expected to generate 1.8 times less return on investment than Needham Small. But when comparing it to its historical volatility, US70082LAB36 is 1.2 times less risky than Needham Small. It trades about 0.08 of its potential returns per unit of risk. Needham Small Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. 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	Significant
Accuracy	65.08%
Values	Daily Returns

US70082LAB36  vs.  Needham Small Cap

US70082LAB36

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US70082LAB36 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 70082LAB3 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with 70082LAB3 and Needham Small

The main advantage of trading using opposite 70082LAB3 and Needham Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 70082LAB3 position performs unexpectedly, Needham Small 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 Small will offset losses from the drop in Needham Small's long position.

The idea behind US70082LAB36 and Needham Small Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.