Correlation Between Schwab California and Schwab Small

Can any of the company-specific risk be diversified away by investing in both Schwab California 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 California 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 California Tax Free and Schwab Small Cap Equity, you can compare the effects of market volatilities on Schwab California 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 California with a short position of Schwab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab California and Schwab Small.

Diversification Opportunities for Schwab California and Schwab Small

0.35

Correlation Coefficient

Schwab California  Schwab Small

Weak diversification

The 3 months correlation between Schwab and Schwab is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Schwab California Tax Free 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 Schwab California 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 California Tax Free 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 California i.e., Schwab California and Schwab Small go up and down completely randomly.

Pair Corralation between Schwab California and Schwab Small

Assuming the 90 days horizon Schwab California Tax Free is expected to generate 0.1 times more return on investment than Schwab Small. However, Schwab California Tax Free is 9.68 times less risky than Schwab Small. It trades about -0.11 of its potential returns per unit of risk. Schwab Small Cap Equity is currently generating about -0.09 per unit of risk. If you would invest  1,121  in Schwab California Tax Free on September 29, 2024 and sell it today you would lose (17.00) from holding Schwab California Tax Free or give up 1.52% of portfolio value over 90 days.

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

Schwab California Tax Free  vs.  Schwab Small Cap Equity

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.

Schwab Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Small Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Schwab California and Schwab Small

The main advantage of trading using opposite Schwab California and Schwab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab California 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 California Tax Free 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.