Correlation Between Schwab Fundamental and First Trust

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

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

Diversification Opportunities for Schwab Fundamental and First Trust

0.97

Correlation Coefficient

Schwab Fundamental  First Trust

Almost no diversification

The 3 months correlation between Schwab and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Small and First Trust Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Active and Schwab Fundamental 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 Fundamental Small are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Active has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and First Trust go up and down completely randomly.

Pair Corralation between Schwab Fundamental and First Trust

Given the investment horizon of 90 days Schwab Fundamental Small is expected to generate 0.99 times more return on investment than First Trust. However, Schwab Fundamental Small is 1.01 times less risky than First Trust. It trades about -0.26 of its potential returns per unit of risk. First Trust Active is currently generating about -0.3 per unit of risk. If you would invest  3,172  in Schwab Fundamental Small on October 6, 2024 and sell it today you would lose (181.00) from holding Schwab Fundamental Small or give up 5.71% of portfolio value over 90 days.

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

Schwab Fundamental Small  vs.  First Trust Active

Schwab Fundamental Small

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Small 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 current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Active

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Active are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Schwab Fundamental and First Trust

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

The idea behind Schwab Fundamental Small and First Trust Active 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.