Correlation Between Calvert Equity and Calvert Small

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

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

Diversification Opportunities for Calvert Equity and Calvert Small

0.6

Correlation Coefficient

Calvert Equity  Calvert Small

Poor diversification

The 3 months correlation between Calvert and Calvert is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Calvert Equity Portfolio and Calvert Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Calvert Small Cap and Calvert Equity 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 Calvert Equity Portfolio are associated (or correlated) with Calvert Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Calvert Small Cap has no effect on the direction of Calvert Equity i.e., Calvert Equity and Calvert Small go up and down completely randomly.

Pair Corralation between Calvert Equity and Calvert Small

Assuming the 90 days horizon Calvert Equity is expected to generate 5.65 times less return on investment than Calvert Small. But when comparing it to its historical volatility, Calvert Equity Portfolio is 1.85 times less risky than Calvert Small. It trades about 0.04 of its potential returns per unit of risk. Calvert Small Cap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,330  in Calvert Small Cap on September 14, 2024 and sell it today you would earn a total of  301.00  from holding Calvert Small Cap or generate 9.04% return on investment over 90 days.

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

Calvert Equity Portfolio  vs.  Calvert Small Cap

Calvert Equity Portfolio

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Calvert Equity Portfolio are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Calvert Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Calvert Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Calvert Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Calvert Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Calvert Equity and Calvert Small

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

The idea behind Calvert Equity Portfolio and Calvert 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.