Correlation Between Schwab Small-cap and Balanced Strategy
Can any of the company-specific risk be diversified away by investing in both Schwab Small-cap and Balanced Strategy 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 Balanced Strategy 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 Balanced Strategy Fund, you can compare the effects of market volatilities on Schwab Small-cap and Balanced Strategy 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 Balanced Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Balanced Strategy.
Diversification Opportunities for Schwab Small-cap and Balanced Strategy
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and Balanced is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy 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 Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Balanced Strategy go up and down completely randomly.
Pair Corralation between Schwab Small-cap and Balanced Strategy
Assuming the 90 days horizon Schwab Small Cap Index is expected to generate 1.87 times more return on investment than Balanced Strategy. However, Schwab Small-cap is 1.87 times more volatile than Balanced Strategy Fund. It trades about 0.18 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.28 per unit of risk. If you would invest 3,574 in Schwab Small Cap Index on November 2, 2024 and sell it today you would earn a total of 123.00 from holding Schwab Small Cap Index or generate 3.44% 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. Balanced Strategy Fund
Performance |
| Timeline |
| Schwab Small Cap |
| Balanced Strategy |
Schwab Small-cap and Balanced Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Small-cap and Balanced Strategy
The main advantage of trading using opposite Schwab Small-cap and Balanced Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap position performs unexpectedly, Balanced Strategy 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 Balanced Strategy will offset losses from the drop in Balanced Strategy's long position.| 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 |
| Balanced Strategy vs. Short Precious Metals | Balanced Strategy vs. Wells Fargo Advantage | Balanced Strategy vs. Global Gold Fund | Balanced Strategy vs. Wells Fargo Advantage |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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