Correlation Between Schwab Small-cap and Schwab 1000
Can any of the company-specific risk be diversified away by investing in both Schwab Small-cap and Schwab 1000 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 Schwab 1000 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 Schwab 1000 Index, you can compare the effects of market volatilities on Schwab Small-cap and Schwab 1000 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 Schwab 1000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Schwab 1000.
Diversification Opportunities for Schwab Small-cap and Schwab 1000
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and Schwab is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Schwab 1000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab 1000 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 Schwab 1000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab 1000 Index has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Schwab 1000 go up and down completely randomly.
Pair Corralation between Schwab Small-cap and Schwab 1000
Assuming the 90 days horizon Schwab Small Cap Index is expected to generate 1.62 times more return on investment than Schwab 1000. However, Schwab Small-cap is 1.62 times more volatile than Schwab 1000 Index. It trades about 0.1 of its potential returns per unit of risk. Schwab 1000 Index is currently generating about 0.12 per unit of risk. If you would invest 3,333 in Schwab Small Cap Index on August 25, 2024 and sell it today you would earn a total of 575.00 from holding Schwab Small Cap Index or generate 17.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Schwab Small Cap Index vs. Schwab 1000 Index
Performance |
| Timeline |
| Schwab Small Cap |
| Schwab 1000 Index |
Schwab Small-cap and Schwab 1000 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Small-cap and Schwab 1000
The main advantage of trading using opposite Schwab Small-cap and Schwab 1000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap position performs unexpectedly, Schwab 1000 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 1000 will offset losses from the drop in Schwab 1000'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 |
| Schwab 1000 vs. Schwab Small Cap Index | Schwab 1000 vs. Schwab Total Stock | Schwab 1000 vs. Schwab International Index | Schwab 1000 vs. Schwab Sp 500 |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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