Correlation Between Dow Jones and Schwab Small-cap
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Schwab Small-cap 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 Dow Jones and Schwab Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Schwab Small Cap Index, you can compare the effects of market volatilities on Dow Jones and Schwab Small-cap 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 Dow Jones with a short position of Schwab Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Schwab Small-cap.
Diversification Opportunities for Dow Jones and Schwab Small-cap
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Schwab is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Schwab Small-cap. 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 Dow Jones i.e., Dow Jones and Schwab Small-cap go up and down completely randomly.
Pair Corralation between Dow Jones and Schwab Small-cap
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.8 times less return on investment than Schwab Small-cap. But when comparing it to its historical volatility, Dow Jones Industrial is 1.67 times less risky than Schwab Small-cap. It trades about 0.21 of its potential returns per unit of risk. Schwab Small Cap Index is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 3,599 in Schwab Small Cap Index on August 25, 2024 and sell it today you would earn a total of 309.00 from holding Schwab Small Cap Index or generate 8.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dow Jones Industrial vs. Schwab Small Cap Index
Performance |
| Timeline |
Dow Jones and Schwab Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Schwab Small Cap Index
Pair trading matchups for Schwab Small-cap
Pair Trading with Dow Jones and Schwab Small-cap
The main advantage of trading using opposite Dow Jones and Schwab Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Schwab Small-cap 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-cap will offset losses from the drop in Schwab Small-cap's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| Schwab Small-cap vs. Schwab International Index | Schwab Small-cap vs. Schwab Total Stock | Schwab Small-cap vs. Schwab Sp 500 | Schwab Small-cap 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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