Correlation Between Schwab Target and Schwab Small-cap
Can any of the company-specific risk be diversified away by investing in both Schwab Target and Schwab Small-cap 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 Target and Schwab Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Target 2030 and Schwab Small Cap Index, you can compare the effects of market volatilities on Schwab Target and Schwab Small-cap 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 Target with a short position of Schwab Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Target and Schwab Small-cap.
Diversification Opportunities for Schwab Target and Schwab Small-cap
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Schwab and Schwab is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Target 2030 and Schwab Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Schwab Target 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 Target 2030 are associated (or correlated) with Schwab Small-cap. 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 Target i.e., Schwab Target and Schwab Small-cap go up and down completely randomly.
Pair Corralation between Schwab Target and Schwab Small-cap
Assuming the 90 days horizon Schwab Target is expected to generate 15.09 times less return on investment than Schwab Small-cap. But when comparing it to its historical volatility, Schwab Target 2030 is 3.9 times less risky than Schwab Small-cap. It trades about 0.06 of its potential returns per unit of risk. Schwab Small Cap Index is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 3,599 in Schwab Small Cap Index on August 25, 2024 and sell it today you would earn a total of 309.00 from holding Schwab Small Cap Index or generate 8.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Schwab Target 2030 vs. Schwab Small Cap Index
Performance |
| Timeline |
| Schwab Target 2030 |
| Schwab Small Cap |
Schwab Target and Schwab Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Target and Schwab Small-cap
The main advantage of trading using opposite Schwab Target and Schwab Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Target position performs unexpectedly, Schwab Small-cap 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-cap will offset losses from the drop in Schwab Small-cap's long position.| Schwab Target vs. Schwab Target 2020 | Schwab Target vs. Schwab Target 2040 | Schwab Target vs. Schwab Target 2025 | Schwab Target vs. Schwab Target 2035 |
| Schwab Small-cap vs. Schwab International Index | Schwab Small-cap vs. Schwab Total Stock | Schwab Small-cap vs. Schwab Sp 500 | Schwab Small-cap vs. Schwab 1000 Index |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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