Correlation Between Schwab Small and Schwab E

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

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

Diversification Opportunities for Schwab Small and Schwab E

0.9

Correlation Coefficient

Schwab Small  Schwab E

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Schwab E Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab E Equity and Schwab Small 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 Small Cap Index are associated (or correlated) with Schwab E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab E Equity has no effect on the direction of Schwab Small i.e., Schwab Small and Schwab E go up and down completely randomly.

Pair Corralation between Schwab Small and Schwab E

Assuming the 90 days horizon Schwab Small is expected to generate 1.06 times less return on investment than Schwab E. In addition to that, Schwab Small is 1.62 times more volatile than Schwab E Equity. It trades about 0.07 of its total potential returns per unit of risk. Schwab E Equity is currently generating about 0.12 per unit of volatility. If you would invest  2,243  in Schwab E Equity on September 13, 2024 and sell it today you would earn a total of  344.00  from holding Schwab E Equity or generate 15.34% return on investment over 90 days.

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

Schwab Small Cap Index  vs.  Schwab E Equity

Schwab Small Cap

Risk-Adjusted Performance

10 of 100

OK

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

Schwab E Equity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab E Equity are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Schwab E may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schwab Small and Schwab E

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

The idea behind Schwab Small Cap Index and Schwab E 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.