Correlation Between Small Cap and Calvert Developed

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

By analyzing existing cross correlation between Small Cap Core and Calvert Developed Market, you can compare the effects of market volatilities on Small Cap and Calvert Developed 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 Calvert Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Calvert Developed.

Diversification Opportunities for Small Cap and Calvert Developed

0.29

Correlation Coefficient

Small Cap  Calvert Developed

Modest diversification

The 3 months correlation between Small and Calvert is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Calvert Developed Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Calvert Developed Market 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 Core are associated (or correlated) with Calvert Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Calvert Developed Market has no effect on the direction of Small Cap i.e., Small Cap and Calvert Developed go up and down completely randomly.

Pair Corralation between Small Cap and Calvert Developed

Assuming the 90 days horizon Small Cap Core is expected to under-perform the Calvert Developed. In addition to that, Small Cap is 2.69 times more volatile than Calvert Developed Market. It trades about -0.13 of its total potential returns per unit of risk. Calvert Developed Market is currently generating about -0.17 per unit of volatility. If you would invest  3,160  in Calvert Developed Market on September 26, 2024 and sell it today you would lose (198.00) from holding Calvert Developed Market or give up 6.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Small Cap Core  vs.  Calvert Developed Market

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Calvert Developed Market

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Calvert Developed Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Small Cap and Calvert Developed

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

The idea behind Small Cap Core and Calvert Developed Market 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 .