Correlation Between First Trust and Schwab Fundamental
Can any of the company-specific risk be diversified away by investing in both First Trust and Schwab Fundamental 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 First Trust and Schwab Fundamental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Value and Schwab Fundamental Broad, you can compare the effects of market volatilities on First Trust and Schwab Fundamental 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 First Trust with a short position of Schwab Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Schwab Fundamental.
Diversification Opportunities for First Trust and Schwab Fundamental
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Schwab is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Value and Schwab Fundamental Broad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental Broad and First Trust 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 First Trust Value are associated (or correlated) with Schwab Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Fundamental Broad has no effect on the direction of First Trust i.e., First Trust and Schwab Fundamental go up and down completely randomly.
Pair Corralation between First Trust and Schwab Fundamental
Considering the 90-day investment horizon First Trust is expected to generate 1.13 times less return on investment than Schwab Fundamental. But when comparing it to its historical volatility, First Trust Value is 1.26 times less risky than Schwab Fundamental. It trades about 0.17 of its potential returns per unit of risk. Schwab Fundamental Broad is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,137 in Schwab Fundamental Broad on September 1, 2024 and sell it today you would earn a total of 333.00 from holding Schwab Fundamental Broad or generate 15.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
First Trust Value vs. Schwab Fundamental Broad
Performance |
| Timeline |
| First Trust Value |
| Schwab Fundamental Broad |
First Trust and Schwab Fundamental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Schwab Fundamental
The main advantage of trading using opposite First Trust and Schwab Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Schwab Fundamental 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 Fundamental will offset losses from the drop in Schwab Fundamental's long position.| First Trust vs. First Trust Morningstar | First Trust vs. First Trust Rising | First Trust vs. First Trust Capital | First Trust vs. WisdomTree LargeCap Dividend |
| Schwab Fundamental vs. Dimensional ETF Trust | Schwab Fundamental vs. Vanguard Small Cap Index | Schwab Fundamental vs. First Trust Multi Manager | Schwab Fundamental vs. Vanguard SP Small Cap |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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