Correlation Between Schwab Small-cap and Fidelity 500
Can any of the company-specific risk be diversified away by investing in both Schwab Small-cap and Fidelity 500 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 Fidelity 500 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 Fidelity 500 Index, you can compare the effects of market volatilities on Schwab Small-cap and Fidelity 500 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 Fidelity 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Fidelity 500.
Diversification Opportunities for Schwab Small-cap and Fidelity 500
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and Fidelity is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Fidelity 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity 500 Index 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 Fidelity 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity 500 Index has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Fidelity 500 go up and down completely randomly.
Pair Corralation between Schwab Small-cap and Fidelity 500
Assuming the 90 days horizon Schwab Small Cap Index is expected to generate 1.94 times more return on investment than Fidelity 500. However, Schwab Small-cap is 1.94 times more volatile than Fidelity 500 Index. It trades about 0.24 of its potential returns per unit of risk. Fidelity 500 Index is currently generating about 0.14 per unit of risk. If you would invest 3,640 in Schwab Small Cap Index on August 29, 2024 and sell it today you would earn a total of 326.00 from holding Schwab Small Cap Index or generate 8.96% 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. Fidelity 500 Index
Performance |
| Timeline |
| Schwab Small Cap |
| Fidelity 500 Index |
Schwab Small-cap and Fidelity 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Small-cap and Fidelity 500
The main advantage of trading using opposite Schwab Small-cap and Fidelity 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap position performs unexpectedly, Fidelity 500 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 Fidelity 500 will offset losses from the drop in Fidelity 500's long position.| Schwab Small-cap vs. Laudus Large Cap | Schwab Small-cap vs. Schwab Target 2010 | Schwab Small-cap vs. Schwab California Tax Free | Schwab Small-cap vs. Schwab Markettrack Servative |
| Fidelity 500 vs. Fidelity Total Market | Fidelity 500 vs. Fidelity Extended Market | Fidelity 500 vs. Fidelity Zero Total | Fidelity 500 vs. Fidelity Small Cap |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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