Correlation Between American Funds and Schwab Target
Can any of the company-specific risk be diversified away by investing in both American Funds and Schwab Target 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 Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2030 and Schwab Target 2030, you can compare the effects of market volatilities on American Funds and Schwab Target 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 Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Schwab Target.
Diversification Opportunities for American Funds and Schwab Target
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Schwab is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2030 and Schwab Target 2030 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Target 2030 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 2030 are associated (or correlated) with Schwab Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Target 2030 has no effect on the direction of American Funds i.e., American Funds and Schwab Target go up and down completely randomly.
Pair Corralation between American Funds and Schwab Target
Assuming the 90 days horizon American Funds is expected to generate 1.32 times less return on investment than Schwab Target. But when comparing it to its historical volatility, American Funds 2030 is 1.07 times less risky than Schwab Target. It trades about 0.06 of its potential returns per unit of risk. Schwab Target 2030 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,724 in Schwab Target 2030 on September 3, 2024 and sell it today you would earn a total of 23.00 from holding Schwab Target 2030 or generate 1.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2030 vs. Schwab Target 2030
Performance |
| Timeline |
| American Funds 2030 |
| Schwab Target 2030 |
American Funds and Schwab Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Schwab Target
The main advantage of trading using opposite American Funds and Schwab Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Schwab Target 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 Target will offset losses from the drop in Schwab Target's long position.| American Funds vs. Trowe Price Retirement | American Funds vs. T Rowe Price | American Funds vs. T Rowe Price | American Funds vs. T Rowe Price |
| Schwab Target vs. Schwab Target 2020 | Schwab Target vs. Schwab Target 2040 | Schwab Target vs. Schwab Target 2025 | Schwab Target vs. Schwab Target 2035 |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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