Correlation Between Schwab Small-cap and American Funds
Can any of the company-specific risk be diversified away by investing in both Schwab Small-cap and American Funds 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 American Funds 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 American Funds Emerging, you can compare the effects of market volatilities on Schwab Small-cap and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and American Funds.
Diversification Opportunities for Schwab Small-cap and American Funds
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Schwab and American is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and American Funds Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Emerging 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Emerging has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and American Funds go up and down completely randomly.
Pair Corralation between Schwab Small-cap and American Funds
Assuming the 90 days horizon Schwab Small Cap Index is expected to generate 2.82 times more return on investment than American Funds. However, Schwab Small-cap is 2.82 times more volatile than American Funds Emerging. It trades about 0.11 of its potential returns per unit of risk. American Funds Emerging is currently generating about 0.15 per unit of risk. If you would invest 3,617 in Schwab Small Cap Index on October 25, 2024 and sell it today you would earn a total of 74.00 from holding Schwab Small Cap Index or generate 2.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab Small Cap Index vs. American Funds Emerging
Performance |
| Timeline |
| Schwab Small Cap |
| American Funds Emerging |
Schwab Small-cap and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Small-cap and American Funds
The main advantage of trading using opposite Schwab Small-cap and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Schwab Small-cap vs. Vanguard Small Cap Index | Schwab Small-cap vs. Vanguard Small Cap Index | Schwab Small-cap vs. Vanguard Small Cap Index | Schwab Small-cap vs. Vanguard Small Cap Index |
| American Funds vs. Fidelity Focused High | American Funds vs. Ab High Income | American Funds vs. Needham Aggressive Growth | American Funds vs. Prudential High Yield |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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