Correlation Between Schwab International and Schwab Large
Can any of the company-specific risk be diversified away by investing in both Schwab International and Schwab Large 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 Large 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 Large Cap ETF, you can compare the effects of market volatilities on Schwab International and Schwab Large 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 Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and Schwab Large.
Diversification Opportunities for Schwab International and Schwab Large
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Schwab and Schwab is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Small Cap and Schwab Large Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Large 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Large Cap has no effect on the direction of Schwab International i.e., Schwab International and Schwab Large go up and down completely randomly.
Pair Corralation between Schwab International and Schwab Large
Given the investment horizon of 90 days Schwab International Small Cap is expected to under-perform the Schwab Large. But the etf apears to be less risky and, when comparing its historical volatility, Schwab International Small Cap is 1.12 times less risky than Schwab Large. The etf trades about -0.15 of its potential returns per unit of risk. The Schwab Large Cap ETF is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 2,293 in Schwab Large Cap ETF on August 28, 2024 and sell it today you would earn a total of 92.00 from holding Schwab Large Cap ETF or generate 4.01% 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 Large Cap ETF
Performance |
| Timeline |
| Schwab International |
| Schwab Large Cap |
Schwab International and Schwab Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab International and Schwab Large
The main advantage of trading using opposite Schwab International and Schwab Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab International position performs unexpectedly, Schwab Large 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 Large will offset losses from the drop in Schwab Large's long position.The idea behind Schwab International Small Cap and Schwab Large 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.
| Schwab Large vs. Schwab Small Cap ETF | Schwab Large vs. Schwab International Equity | Schwab Large vs. Schwab Emerging Markets | Schwab Large vs. Schwab Broad Market |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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