Correlation Between Schwab California and California Municipal
Can any of the company-specific risk be diversified away by investing in both Schwab California and California Municipal 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 California and California Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab California Tax Free and California Municipal Fund, you can compare the effects of market volatilities on Schwab California and California Municipal 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 California with a short position of California Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab California and California Municipal.
Diversification Opportunities for Schwab California and California Municipal
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Schwab and California is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Schwab California Tax Free and California Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal and Schwab California 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 California Tax Free are associated (or correlated) with California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of Schwab California i.e., Schwab California and California Municipal go up and down completely randomly.
Pair Corralation between Schwab California and California Municipal
Assuming the 90 days horizon Schwab California is expected to generate 1.16 times less return on investment than California Municipal. But when comparing it to its historical volatility, Schwab California Tax Free is 1.04 times less risky than California Municipal. It trades about 0.1 of its potential returns per unit of risk. California Municipal Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 950.00 in California Municipal Fund on September 4, 2024 and sell it today you would earn a total of 46.00 from holding California Municipal Fund or generate 4.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab California Tax Free vs. California Municipal Fund
Performance |
| Timeline |
| Schwab California Tax |
| California Municipal |
Schwab California and California Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab California and California Municipal
The main advantage of trading using opposite Schwab California and California Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab California position performs unexpectedly, California Municipal 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 California Municipal will offset losses from the drop in California Municipal's long position.| Schwab California vs. Vanguard California Long Term | Schwab California vs. Franklin High Yield | Schwab California vs. California High Yield Municipal | Schwab California vs. Bbh Intermediate Municipal |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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