Correlation Between Small Cap and Eaton Vance

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

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

Diversification Opportunities for Small Cap and Eaton Vance

0.62

Correlation Coefficient

Small Cap  Eaton Vance

Poor diversification

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

Pair Corralation between Small Cap and Eaton Vance

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Eaton Vance. In addition to that, Small Cap is 2.21 times more volatile than Eaton Vance Tax Managed. It trades about -0.18 of its total potential returns per unit of risk. Eaton Vance Tax Managed is currently generating about -0.14 per unit of volatility. If you would invest  1,742  in Eaton Vance Tax Managed on October 9, 2024 and sell it today you would lose (65.00) from holding Eaton Vance Tax Managed or give up 3.73% of portfolio value over 90 days.

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

Small Cap Value  vs.  Eaton Vance Tax Managed

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eaton Vance Tax

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Eaton Vance

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

The idea behind Small Cap Value and Eaton Vance Tax Managed 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.