Correlation Between Schwab Fundamental and SPDR SSGA
Can any of the company-specific risk be diversified away by investing in both Schwab Fundamental and SPDR SSGA 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 Fundamental and SPDR SSGA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Fundamental Small and SPDR SSGA Small, you can compare the effects of market volatilities on Schwab Fundamental and SPDR SSGA 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 Fundamental with a short position of SPDR SSGA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and SPDR SSGA.
Diversification Opportunities for Schwab Fundamental and SPDR SSGA
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Schwab and SPDR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Small and SPDR SSGA Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA Small and Schwab Fundamental 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 Fundamental Small are associated (or correlated) with SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA Small has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and SPDR SSGA go up and down completely randomly.
Pair Corralation between Schwab Fundamental and SPDR SSGA
Given the investment horizon of 90 days Schwab Fundamental Small is expected to generate 0.97 times more return on investment than SPDR SSGA. However, Schwab Fundamental Small is 1.03 times less risky than SPDR SSGA. It trades about 0.06 of its potential returns per unit of risk. SPDR SSGA Small is currently generating about 0.06 per unit of risk. If you would invest 2,322 in Schwab Fundamental Small on August 28, 2024 and sell it today you would earn a total of 920.00 from holding Schwab Fundamental Small or generate 39.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab Fundamental Small vs. SPDR SSGA Small
Performance |
| Timeline |
| Schwab Fundamental Small |
| SPDR SSGA Small |
Schwab Fundamental and SPDR SSGA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Fundamental and SPDR SSGA
The main advantage of trading using opposite Schwab Fundamental and SPDR SSGA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Fundamental position performs unexpectedly, SPDR SSGA 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 SPDR SSGA will offset losses from the drop in SPDR SSGA's long position.The idea behind Schwab Fundamental Small and SPDR SSGA Small 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.
| SPDR SSGA vs. SPDR SSGA Large | SPDR SSGA vs. Invesco SP SmallCap | SPDR SSGA vs. Invesco SP MidCap | SPDR SSGA vs. SPDR MSCI EAFE |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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