Correlation Between Needham Small and Small Company

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

Diversification Opportunities for Needham Small and Small Company

0.91

Correlation Coefficient

Needham Small  Small Company

Almost no diversification

The 3 months correlation between Needham and Small is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Small Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Value 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 Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Value has no effect on the direction of Needham Small i.e., Needham Small and Small Company go up and down completely randomly.

Pair Corralation between Needham Small and Small Company

Assuming the 90 days horizon Needham Small Cap is expected to generate 1.43 times more return on investment than Small Company. However, Needham Small is 1.43 times more volatile than Small Pany Value. It trades about 0.15 of its potential returns per unit of risk. Small Pany Value is currently generating about 0.09 per unit of risk. If you would invest  1,649  in Needham Small Cap on May 15, 2025 and sell it today you would earn a total of  239.00  from holding Needham Small Cap or generate 14.49% return on investment over 90 days.

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

Needham Small Cap  vs.  Small Pany Value

Needham Small Cap

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 11 (%) 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.

Small Pany Value

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Value are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Small Company 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 Small Company

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

The idea behind Needham Small Cap and Small Pany Value 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.