Correlation Between Schwab Small-cap and Fulcrum Diversified
Can any of the company-specific risk be diversified away by investing in both Schwab Small-cap and Fulcrum Diversified 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 Small-cap and Fulcrum Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Small Cap Index and Fulcrum Diversified Absolute, you can compare the effects of market volatilities on Schwab Small-cap and Fulcrum Diversified 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 Small-cap with a short position of Fulcrum Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Fulcrum Diversified.
Diversification Opportunities for Schwab Small-cap and Fulcrum Diversified
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and Fulcrum is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Fulcrum Diversified Absolute in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fulcrum Diversified and Schwab Small-cap 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 Small Cap Index are associated (or correlated) with Fulcrum Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fulcrum Diversified has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Fulcrum Diversified go up and down completely randomly.
Pair Corralation between Schwab Small-cap and Fulcrum Diversified
Assuming the 90 days horizon Schwab Small Cap Index is expected to under-perform the Fulcrum Diversified. In addition to that, Schwab Small-cap is 2.4 times more volatile than Fulcrum Diversified Absolute. It trades about -0.22 of its total potential returns per unit of risk. Fulcrum Diversified Absolute is currently generating about 0.0 per unit of volatility. If you would invest 943.00 in Fulcrum Diversified Absolute on November 25, 2024 and sell it today you would earn a total of 0.00 from holding Fulcrum Diversified Absolute or generate 0.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Schwab Small Cap Index vs. Fulcrum Diversified Absolute
Performance |
Timeline |
Schwab Small Cap |
Fulcrum Diversified |
Schwab Small-cap and Fulcrum Diversified Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Schwab Small-cap and Fulcrum Diversified
The main advantage of trading using opposite Schwab Small-cap and Fulcrum Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap position performs unexpectedly, Fulcrum Diversified 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 Fulcrum Diversified will offset losses from the drop in Fulcrum Diversified's long position.Schwab Small-cap vs. Schwab International Index | ||
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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