Correlation Between Schwab Emerging and Schwab Small

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

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

Diversification Opportunities for Schwab Emerging and Schwab Small

-0.11

Correlation Coefficient

Schwab Emerging  Schwab Small

Good diversification

The 3 months correlation between Schwab and Schwab is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Emerging Markets and Schwab Small Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Schwab Emerging 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 Emerging Markets 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 Schwab Emerging i.e., Schwab Emerging and Schwab Small go up and down completely randomly.

Pair Corralation between Schwab Emerging and Schwab Small

Given the investment horizon of 90 days Schwab Emerging is expected to generate 2.17 times less return on investment than Schwab Small. In addition to that, Schwab Emerging is 1.04 times more volatile than Schwab Small Cap ETF. It trades about 0.07 of its total potential returns per unit of risk. Schwab Small Cap ETF is currently generating about 0.17 per unit of volatility. If you would invest  2,456  in Schwab Small Cap ETF on September 12, 2024 and sell it today you would earn a total of  304.00  from holding Schwab Small Cap ETF or generate 12.38% return on investment over 90 days.

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

Schwab Emerging Markets  vs.  Schwab Small Cap ETF

Schwab Emerging Markets

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Emerging Markets are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Schwab Emerging is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Schwab Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Small Cap ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Schwab Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schwab Emerging and Schwab Small

The main advantage of trading using opposite Schwab Emerging and Schwab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Emerging 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 Schwab Emerging Markets and Schwab Small Cap ETF 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.