Correlation Between Schwab Dividend and Vanguard

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Can any of the company-specific risk be diversified away by investing in both Schwab Dividend and Vanguard 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 Dividend and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Dividend Equity and Vanguard SP 500, you can compare the effects of market volatilities on Schwab Dividend and Vanguard 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 Dividend with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Dividend and Vanguard.

Diversification Opportunities for Schwab Dividend and Vanguard

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Schwab and Vanguard is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Dividend Equity and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Schwab Dividend 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 Dividend Equity are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Schwab Dividend i.e., Schwab Dividend and Vanguard go up and down completely randomly.

Pair Corralation between Schwab Dividend and Vanguard

Given the investment horizon of 90 days Schwab Dividend Equity is expected to under-perform the Vanguard. In addition to that, Schwab Dividend is 1.42 times more volatile than Vanguard SP 500. It trades about -0.21 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.33 per unit of volatility. If you would invest  54,073  in Vanguard SP 500 on September 19, 2024 and sell it today you would earn a total of  1,472  from holding Vanguard SP 500 or generate 2.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Schwab Dividend Equity  vs.  Vanguard SP 500

 Performance 
       Timeline  
Schwab Dividend Equity 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Weak
Over the last 90 days Schwab Dividend Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Schwab Dividend is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
Vanguard SP 500 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Schwab Dividend and Vanguard Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Schwab Dividend and Vanguard

The main advantage of trading using opposite Schwab Dividend and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Dividend position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.
The idea behind Schwab Dividend Equity and Vanguard SP 500 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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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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