Correlation Between IShares MSCI and Schwab Fundamental

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

By analyzing existing cross correlation between iShares MSCI USA and Schwab Fundamental Broad, you can compare the effects of market volatilities on IShares MSCI and Schwab Fundamental 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 IShares MSCI with a short position of Schwab Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Schwab Fundamental.

Diversification Opportunities for IShares MSCI and Schwab Fundamental

0.92

Correlation Coefficient

IShares MSCI  Schwab Fundamental

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Schwab Fundamental Broad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental Broad and IShares MSCI 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 iShares MSCI USA are associated (or correlated) with Schwab Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Fundamental Broad has no effect on the direction of IShares MSCI i.e., IShares MSCI and Schwab Fundamental go up and down completely randomly.

Pair Corralation between IShares MSCI and Schwab Fundamental

Given the investment horizon of 90 days iShares MSCI USA is expected to under-perform the Schwab Fundamental. In addition to that, IShares MSCI is 1.13 times more volatile than Schwab Fundamental Broad. It trades about -0.23 of its total potential returns per unit of risk. Schwab Fundamental Broad is currently generating about -0.15 per unit of volatility. If you would invest  2,422  in Schwab Fundamental Broad on October 8, 2024 and sell it today you would lose (61.00) from holding Schwab Fundamental Broad or give up 2.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.0%
Values	Daily Returns

iShares MSCI USA  vs.  Schwab Fundamental Broad

iShares MSCI USA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab Fundamental Broad

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Broad are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Schwab Fundamental

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

The idea behind iShares MSCI USA and Schwab Fundamental Broad 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.