Correlation Between Schwab International and IShares CMBS

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

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

Diversification Opportunities for Schwab International and IShares CMBS

0.72

Correlation Coefficient

Schwab International  IShares CMBS

Poor diversification

The 3 months correlation between Schwab and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Equity and iShares CMBS ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares CMBS ETF and Schwab International 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 International Equity are associated (or correlated) with IShares CMBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares CMBS ETF has no effect on the direction of Schwab International i.e., Schwab International and IShares CMBS go up and down completely randomly.

Pair Corralation between Schwab International and IShares CMBS

Given the investment horizon of 90 days Schwab International is expected to generate 4.09 times less return on investment than IShares CMBS. In addition to that, Schwab International is 3.49 times more volatile than iShares CMBS ETF. It trades about 0.01 of its total potential returns per unit of risk. iShares CMBS ETF is currently generating about 0.18 per unit of volatility. If you would invest  4,721  in iShares CMBS ETF on September 2, 2024 and sell it today you would earn a total of  43.00  from holding iShares CMBS ETF or generate 0.91% return on investment over 90 days.

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

Schwab International Equity  vs.  iShares CMBS ETF

Schwab International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab International Equity has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares CMBS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares CMBS ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, IShares CMBS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Schwab International and IShares CMBS

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

The idea behind Schwab International Equity and iShares CMBS 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.