Correlation Between Laudus Large and Schwab Small

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

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

Diversification Opportunities for Laudus Large and Schwab Small

0.88

Correlation Coefficient

Laudus Large  Schwab Small

Very poor diversification

The 3 months correlation between Laudus and Schwab is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Laudus Large Cap and Schwab Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Laudus Large 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 Laudus Large Cap are associated (or correlated) with Schwab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Small Cap has no effect on the direction of Laudus Large i.e., Laudus Large and Schwab Small go up and down completely randomly.

Pair Corralation between Laudus Large and Schwab Small

Assuming the 90 days horizon Laudus Large Cap is expected to generate 1.07 times more return on investment than Schwab Small. However, Laudus Large is 1.07 times more volatile than Schwab Small Cap Equity. It trades about 0.05 of its potential returns per unit of risk. Schwab Small Cap Equity is currently generating about 0.05 per unit of risk. If you would invest  2,303  in Laudus Large Cap on September 12, 2024 and sell it today you would earn a total of  567.00  from holding Laudus Large Cap or generate 24.62% return on investment over 90 days.

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

Laudus Large Cap  vs.  Schwab Small Cap Equity

Laudus Large Cap

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Laudus Large Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Laudus Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Schwab Small Cap

Risk-Adjusted Performance

10 of 100

Good

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

Pair Trading with Laudus Large and Schwab Small

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

The idea behind Laudus Large Cap and Schwab Small Cap Equity 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.