Correlation Between Schwab Fundamental and Schwab International

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

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

Diversification Opportunities for Schwab Fundamental and Schwab International

-0.41

Correlation Coefficient

Schwab Fundamental  Schwab International

Very good diversification

The 3 months correlation between Schwab and Schwab is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Small and Schwab International Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab International and Schwab Fundamental 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 Schwab Fundamental Small are associated (or correlated) with Schwab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab International has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and Schwab International go up and down completely randomly.

Pair Corralation between Schwab Fundamental and Schwab International

Given the investment horizon of 90 days Schwab Fundamental Small is expected to generate 1.3 times more return on investment than Schwab International. However, Schwab Fundamental is 1.3 times more volatile than Schwab International Small Cap. It trades about 0.14 of its potential returns per unit of risk. Schwab International Small Cap is currently generating about -0.07 per unit of risk. If you would invest  2,924  in Schwab Fundamental Small on August 30, 2024 and sell it today you would earn a total of  295.00  from holding Schwab Fundamental Small or generate 10.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Schwab Fundamental Small  vs.  Schwab International Small Cap

Schwab Fundamental Small

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Small are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Schwab Fundamental may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Schwab International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab International Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Schwab International is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Schwab Fundamental and Schwab International

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

The idea behind Schwab Fundamental Small and Schwab International 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.