Correlation Between Schwab Fundamental and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Schwab Fundamental and SPDR SP 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 SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Fundamental International and SPDR SP International, you can compare the effects of market volatilities on Schwab Fundamental and SPDR SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and SPDR SP.
Diversification Opportunities for Schwab Fundamental and SPDR SP
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and SPDR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Internation and SPDR SP International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP International 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 International are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP International has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and SPDR SP go up and down completely randomly.
Pair Corralation between Schwab Fundamental and SPDR SP
Given the investment horizon of 90 days Schwab Fundamental International is expected to under-perform the SPDR SP. In addition to that, Schwab Fundamental is 1.27 times more volatile than SPDR SP International. It trades about -0.11 of its total potential returns per unit of risk. SPDR SP International is currently generating about -0.12 per unit of volatility. If you would invest 3,695 in SPDR SP International on August 24, 2024 and sell it today you would lose (68.00) from holding SPDR SP International or give up 1.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab Fundamental Internation vs. SPDR SP International
Performance |
| Timeline |
| Schwab Fundamental |
| SPDR SP International |
Schwab Fundamental and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Fundamental and SPDR SP
The main advantage of trading using opposite Schwab Fundamental and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Fundamental position performs unexpectedly, SPDR SP 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 SP will offset losses from the drop in SPDR SP's long position.| Schwab Fundamental vs. Dimensional Targeted Value | Schwab Fundamental vs. Dimensional Small Cap | Schwab Fundamental vs. Dimensional Marketwide Value | Schwab Fundamental vs. Dimensional Core Equity |
| SPDR SP vs. SPDR SP Emerging | SPDR SP vs. iShares International Select | SPDR SP vs. First Trust Dow | SPDR SP vs. Invesco International Dividend |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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