Correlation Between Vanguard Total and Schwab REIT

Can any of the company-specific risk be diversified away by investing in both Vanguard Total and Schwab REIT 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 Vanguard Total and Schwab REIT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Total International and Schwab REIT ETF, you can compare the effects of market volatilities on Vanguard Total and Schwab REIT 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 Vanguard Total with a short position of Schwab REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Schwab REIT.

Diversification Opportunities for Vanguard Total and Schwab REIT

0.74

Correlation Coefficient

Vanguard Total  Schwab REIT

Poor diversification

The 3 months correlation between Vanguard and Schwab is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total International and Schwab REIT ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab REIT ETF and Vanguard Total 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 Vanguard Total International are associated (or correlated) with Schwab REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab REIT ETF has no effect on the direction of Vanguard Total i.e., Vanguard Total and Schwab REIT go up and down completely randomly.

Pair Corralation between Vanguard Total and Schwab REIT

Given the investment horizon of 90 days Vanguard Total is expected to generate 1.54 times less return on investment than Schwab REIT. But when comparing it to its historical volatility, Vanguard Total International is 4.18 times less risky than Schwab REIT. It trades about 0.15 of its potential returns per unit of risk. Schwab REIT ETF is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,250  in Schwab REIT ETF on September 2, 2024 and sell it today you would earn a total of  63.00  from holding Schwab REIT ETF or generate 2.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Vanguard Total International  vs.  Schwab REIT ETF

Vanguard Total Inter

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Schwab REIT ETF

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab REIT ETF are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Schwab REIT is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Vanguard Total and Schwab REIT

The main advantage of trading using opposite Vanguard Total and Schwab REIT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total position performs unexpectedly, Schwab REIT 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 REIT will offset losses from the drop in Schwab REIT's long position.

The idea behind Vanguard Total International and Schwab REIT ETF pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.