Correlation Between Schwab Fundamental and IShares ESG

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

Diversification Opportunities for Schwab Fundamental and IShares ESG

1.0

Correlation Coefficient

Schwab Fundamental  IShares ESG

No risk reduction

The 3 months correlation between Schwab and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Small and iShares ESG Screened in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Screened 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 IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Screened has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and IShares ESG go up and down completely randomly.

Pair Corralation between Schwab Fundamental and IShares ESG

Given the investment horizon of 90 days Schwab Fundamental Small is expected to generate 0.93 times more return on investment than IShares ESG. However, Schwab Fundamental Small is 1.07 times less risky than IShares ESG. It trades about -0.09 of its potential returns per unit of risk. iShares ESG Screened is currently generating about -0.11 per unit of risk. If you would invest  2,978  in Schwab Fundamental Small on December 20, 2024 and sell it today you would lose (174.00) from holding Schwab Fundamental Small or give up 5.84% 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.  iShares ESG Screened

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 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.

iShares ESG Screened

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares ESG Screened has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Etf's forward-looking indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Schwab Fundamental and IShares ESG

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

The idea behind Schwab Fundamental Small and iShares ESG Screened 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.