Correlation Between Schwab International and Schwab Small
Can any of the company-specific risk be diversified away by investing in both Schwab International and Schwab Small 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 International and Schwab Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab International Small Cap and Schwab Small Cap ETF, you can compare the effects of market volatilities on Schwab International and Schwab Small 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 International with a short position of Schwab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and Schwab Small.
Diversification Opportunities for Schwab International and Schwab Small
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Schwab and Schwab is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Small Cap and Schwab Small Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Schwab International 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 International Small Cap are associated (or correlated) with Schwab Small. 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 Schwab International i.e., Schwab International and Schwab Small go up and down completely randomly.
Pair Corralation between Schwab International and Schwab Small
Given the investment horizon of 90 days Schwab International Small Cap is expected to under-perform the Schwab Small. But the etf apears to be less risky and, when comparing its historical volatility, Schwab International Small Cap is 1.9 times less risky than Schwab Small. The etf trades about -0.15 of its potential returns per unit of risk. The Schwab Small Cap ETF is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 2,596 in Schwab Small Cap ETF on August 28, 2024 and sell it today you would earn a total of 215.00 from holding Schwab Small Cap ETF or generate 8.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab International Small Cap vs. Schwab Small Cap ETF
Performance |
| Timeline |
| Schwab International |
| Schwab Small Cap |
Schwab International and Schwab Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab International and Schwab Small
The main advantage of trading using opposite Schwab International and Schwab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab International position performs unexpectedly, Schwab Small 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 will offset losses from the drop in Schwab Small's long position.The idea behind Schwab International Small Cap and Schwab Small Cap ETF 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.
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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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