Correlation Between Schwab Aggregate and Schwab International
Can any of the company-specific risk be diversified away by investing in both Schwab Aggregate and Schwab International 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 Aggregate and Schwab International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Aggregate Bond and Schwab International Small Cap, you can compare the effects of market volatilities on Schwab Aggregate and Schwab International 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 Aggregate with a short position of Schwab International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Aggregate and Schwab International.
Diversification Opportunities for Schwab Aggregate and Schwab International
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and Schwab is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Aggregate Bond and Schwab International Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab International and Schwab Aggregate 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 Aggregate Bond are associated (or correlated) with Schwab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab International has no effect on the direction of Schwab Aggregate i.e., Schwab Aggregate and Schwab International go up and down completely randomly.
Pair Corralation between Schwab Aggregate and Schwab International
Given the investment horizon of 90 days Schwab Aggregate is expected to generate 4.85 times less return on investment than Schwab International. But when comparing it to its historical volatility, Schwab Aggregate Bond is 2.79 times less risky than Schwab International. It trades about 0.13 of its potential returns per unit of risk. Schwab International Small Cap is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 3,433 in Schwab International Small Cap on November 1, 2024 and sell it today you would earn a total of 133.00 from holding Schwab International Small Cap or generate 3.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab Aggregate Bond vs. Schwab International Small Cap
Performance |
| Timeline |
| Schwab Aggregate Bond |
| Schwab International |
Schwab Aggregate and Schwab International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Aggregate and Schwab International
The main advantage of trading using opposite Schwab Aggregate and Schwab International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Aggregate position performs unexpectedly, Schwab International 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 International will offset losses from the drop in Schwab International's long position.| Schwab Aggregate vs. Schwab International Equity | Schwab Aggregate vs. Schwab Emerging Markets | Schwab Aggregate vs. Schwab Short Term Treasury | Schwab Aggregate vs. Schwab TIPS ETF |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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