Correlation Between American Funds and Schwab Small
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and Schwab Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Fundamental and Schwab Small Cap Index, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of Schwab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Schwab Small.
Diversification Opportunities for American Funds and Schwab Small
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Schwab is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Fundamental and Schwab Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and American Funds 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 American Funds Fundamental 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 American Funds i.e., American Funds and Schwab Small go up and down completely randomly.
Pair Corralation between American Funds and Schwab Small
Assuming the 90 days horizon American Funds Fundamental is expected to generate 0.66 times more return on investment than Schwab Small. However, American Funds Fundamental is 1.52 times less risky than Schwab Small. It trades about 0.11 of its potential returns per unit of risk. Schwab Small Cap Index is currently generating about 0.01 per unit of risk. If you would invest 8,824 in American Funds Fundamental on September 13, 2024 and sell it today you would earn a total of 122.00 from holding American Funds Fundamental or generate 1.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Fundamental vs. Schwab Small Cap Index
Performance |
| Timeline |
| American Funds Funda |
| Schwab Small Cap |
American Funds and Schwab Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Schwab Small
The main advantage of trading using opposite American Funds and Schwab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Growth Fund Of | American Funds vs. Europacific Growth Fund | American Funds vs. Capital World Growth | American Funds vs. Capital Income Builder |
| Schwab Small vs. Schwab International Index | Schwab Small vs. Schwab Total Stock | Schwab Small vs. Schwab Sp 500 | Schwab Small vs. Schwab 1000 Index |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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