Correlation Between Schwab Target and American Funds
Can any of the company-specific risk be diversified away by investing in both Schwab Target 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 Target 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 Target 2060 and American Funds 2060, you can compare the effects of market volatilities on Schwab Target 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 Target with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Target and American Funds.
Diversification Opportunities for Schwab Target and American Funds
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Schwab and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Target 2060 and American Funds 2060 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2060 and Schwab Target 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 Target 2060 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 2060 has no effect on the direction of Schwab Target i.e., Schwab Target and American Funds go up and down completely randomly.
Pair Corralation between Schwab Target and American Funds
Assuming the 90 days horizon Schwab Target 2060 is expected to generate 1.05 times more return on investment than American Funds. However, Schwab Target is 1.05 times more volatile than American Funds 2060. It trades about 0.1 of its potential returns per unit of risk. American Funds 2060 is currently generating about 0.1 per unit of risk. If you would invest 1,536 in Schwab Target 2060 on August 31, 2024 and sell it today you would earn a total of 476.00 from holding Schwab Target 2060 or generate 30.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Schwab Target 2060 vs. American Funds 2060
Performance |
| Timeline |
| Schwab Target 2060 |
| American Funds 2060 |
Schwab Target and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Target and American Funds
The main advantage of trading using opposite Schwab Target and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Target 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 Target vs. American Funds 2060 | Schwab Target vs. American Funds 2060 | Schwab Target vs. T Rowe Price | Schwab Target vs. Fidelity Freedom Index |
| American Funds vs. Prudential Jennison Financial | American Funds vs. Royce Global Financial | American Funds vs. Davis Financial Fund | American Funds vs. Blackrock Financial Institutions |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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