Correlation Between Schwab Fundamental and SPDR Portfolio

Can any of the company-specific risk be diversified away by investing in both Schwab Fundamental and SPDR Portfolio 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 SPDR Portfolio 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 SPDR Portfolio SP, you can compare the effects of market volatilities on Schwab Fundamental and SPDR Portfolio 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 SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and SPDR Portfolio.

Diversification Opportunities for Schwab Fundamental and SPDR Portfolio

0.96

Correlation Coefficient

Schwab Fundamental  SPDR Portfolio

Almost no diversification

The 3 months correlation between Schwab and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Small and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Schwab Fundamental and SPDR Portfolio

Given the investment horizon of 90 days Schwab Fundamental Small is expected to under-perform the SPDR Portfolio. But the etf apears to be less risky and, when comparing its historical volatility, Schwab Fundamental Small is 1.03 times less risky than SPDR Portfolio. The etf trades about -0.11 of its potential returns per unit of risk. The SPDR Portfolio SP is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  4,472  in SPDR Portfolio SP on December 28, 2024 and sell it today you would lose (304.00) from holding SPDR Portfolio SP or give up 6.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Schwab Fundamental Small  vs.  SPDR Portfolio SP

Schwab Fundamental Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Fundamental Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Schwab Fundamental and SPDR Portfolio

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

The idea behind Schwab Fundamental Small and SPDR Portfolio SP 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.