Correlation Between Smallcap Growth and Schwab California

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

By analyzing existing cross correlation between Smallcap Growth Fund and Schwab California Tax Free, you can compare the effects of market volatilities on Smallcap Growth and Schwab California 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 Smallcap Growth with a short position of Schwab California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Schwab California.

Diversification Opportunities for Smallcap Growth and Schwab California

0.16

Correlation Coefficient

Smallcap Growth  Schwab California

Average diversification

The 3 months correlation between Smallcap and Schwab is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Schwab California Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab California Tax and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Schwab California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab California Tax has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Schwab California go up and down completely randomly.

Pair Corralation between Smallcap Growth and Schwab California

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 5.7 times more return on investment than Schwab California. However, Smallcap Growth is 5.7 times more volatile than Schwab California Tax Free. It trades about 0.02 of its potential returns per unit of risk. Schwab California Tax Free is currently generating about -0.1 per unit of risk. If you would invest  1,590  in Smallcap Growth Fund on September 21, 2024 and sell it today you would earn a total of  15.00  from holding Smallcap Growth Fund or generate 0.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Smallcap Growth Fund  vs.  Schwab California Tax Free

Smallcap Growth

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Smallcap Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab California Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab California Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Schwab California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap Growth and Schwab California

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

The idea behind Smallcap Growth Fund and Schwab California Tax Free 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 CEOs Directory module to screen CEOs from public companies around the world.