Correlation Between Schwab Fundamental and First Trust

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

By analyzing existing cross correlation between Schwab Fundamental Emerging and First Trust Emerging, you can compare the effects of market volatilities on Schwab Fundamental and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and First Trust.

Diversification Opportunities for Schwab Fundamental and First Trust

0.62

Correlation Coefficient

Schwab Fundamental  First Trust

Poor diversification

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

Pair Corralation between Schwab Fundamental and First Trust

Given the investment horizon of 90 days Schwab Fundamental Emerging is expected to generate 1.75 times more return on investment than First Trust. However, Schwab Fundamental is 1.75 times more volatile than First Trust Emerging. It trades about 0.02 of its potential returns per unit of risk. First Trust Emerging is currently generating about -0.05 per unit of risk. If you would invest  3,012  in Schwab Fundamental Emerging on August 30, 2024 and sell it today you would earn a total of  27.00  from holding Schwab Fundamental Emerging or generate 0.9% return on investment over 90 days.

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

Schwab Fundamental Emerging  vs.  First Trust Emerging

Schwab Fundamental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Emerging are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Schwab Fundamental and First Trust

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

The idea behind Schwab Fundamental Emerging and First Trust Emerging 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.