Correlation Between Needham Small and Pharmaceuticals Ultrasector

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

Diversification Opportunities for Needham Small and Pharmaceuticals Ultrasector

0.64

Correlation Coefficient

Needham Small  Pharmaceuticals Ultrasector

Poor diversification

The 3 months correlation between Needham and Pharmaceuticals is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Pharmaceuticals Ultrasector Pr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharmaceuticals Ultrasector 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 Pharmaceuticals Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharmaceuticals Ultrasector has no effect on the direction of Needham Small i.e., Needham Small and Pharmaceuticals Ultrasector go up and down completely randomly.

Pair Corralation between Needham Small and Pharmaceuticals Ultrasector

Assuming the 90 days horizon Needham Small Cap is expected to generate 0.82 times more return on investment than Pharmaceuticals Ultrasector. However, Needham Small Cap is 1.22 times less risky than Pharmaceuticals Ultrasector. It trades about 0.27 of its potential returns per unit of risk. Pharmaceuticals Ultrasector Profund is currently generating about 0.11 per unit of risk. If you would invest  1,453  in Needham Small Cap on April 24, 2025 and sell it today you would earn a total of  427.00  from holding Needham Small Cap or generate 29.39% return on investment over 90 days.

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

Needham Small Cap  vs.  Pharmaceuticals Ultrasector Pr

Needham Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Needham Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pharmaceuticals Ultrasector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pharmaceuticals Ultrasector Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Pharmaceuticals Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Needham Small and Pharmaceuticals Ultrasector

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

The idea behind Needham Small Cap and Pharmaceuticals Ultrasector Profund 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .