Correlation Between Target Retirement and Schwab Health
Can any of the company-specific risk be diversified away by investing in both Target Retirement and Schwab Health 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 Target Retirement and Schwab Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target Retirement 2040 and Schwab Health Care, you can compare the effects of market volatilities on Target Retirement and Schwab Health 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 Target Retirement with a short position of Schwab Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Schwab Health.
Diversification Opportunities for Target Retirement and Schwab Health
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Target and Schwab is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Schwab Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Health Care and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Schwab Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Health Care has no effect on the direction of Target Retirement i.e., Target Retirement and Schwab Health go up and down completely randomly.
Pair Corralation between Target Retirement and Schwab Health
Assuming the 90 days horizon Target Retirement is expected to generate 1.03 times less return on investment than Schwab Health. But when comparing it to its historical volatility, Target Retirement 2040 is 1.19 times less risky than Schwab Health. It trades about 0.18 of its potential returns per unit of risk. Schwab Health Care is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,349 in Schwab Health Care on October 24, 2024 and sell it today you would earn a total of 46.00 from holding Schwab Health Care or generate 1.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target Retirement 2040 vs. Schwab Health Care
Performance |
| Timeline |
| Target Retirement 2040 |
| Schwab Health Care |
Target Retirement and Schwab Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target Retirement and Schwab Health
The main advantage of trading using opposite Target Retirement and Schwab Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement position performs unexpectedly, Schwab Health 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 Health will offset losses from the drop in Schwab Health's long position.| Target Retirement vs. Jpmorgan Smartretirement 2035 | Target Retirement vs. Sierra E Retirement | Target Retirement vs. Calvert Moderate Allocation | Target Retirement vs. Columbia Moderate Growth |
| Schwab Health vs. Tiaa Cref Lifestyle Moderate | Schwab Health vs. Retirement Living Through | Schwab Health vs. Target Retirement 2040 | Schwab Health vs. Moderately Aggressive Balanced |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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