Correlation Between Small Cap and Calvert Income

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

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

Diversification Opportunities for Small Cap and Calvert Income

0.24

Correlation Coefficient

Small Cap  Calvert Income

Modest diversification

The 3 months correlation between Small and Calvert is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Calvert Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Calvert Income 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 Stock are associated (or correlated) with Calvert Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Calvert Income has no effect on the direction of Small Cap i.e., Small Cap and Calvert Income go up and down completely randomly.

Pair Corralation between Small Cap and Calvert Income

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Calvert Income. In addition to that, Small Cap is 4.47 times more volatile than Calvert Income Fund. It trades about -0.23 of its total potential returns per unit of risk. Calvert Income Fund is currently generating about 0.07 per unit of volatility. If you would invest  1,501  in Calvert Income Fund on December 2, 2024 and sell it today you would earn a total of  18.00  from holding Calvert Income Fund or generate 1.2% return on investment over 90 days.

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

Small Cap Stock  vs.  Calvert Income Fund

Small Cap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Stock 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Calvert Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Calvert Income Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Calvert Income 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 Calvert Income

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

The idea behind Small Cap Stock and Calvert Income Fund 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.