Correlation Between Schwab Fundamental and IShares MSCI

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

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

Diversification Opportunities for Schwab Fundamental and IShares MSCI

0.97

Correlation Coefficient

Schwab Fundamental  IShares MSCI

Almost no diversification

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

Pair Corralation between Schwab Fundamental and IShares MSCI

Given the investment horizon of 90 days Schwab Fundamental Emerging is expected to generate 1.24 times more return on investment than IShares MSCI. However, Schwab Fundamental is 1.24 times more volatile than iShares MSCI Emerging. It trades about 0.04 of its potential returns per unit of risk. iShares MSCI Emerging is currently generating about 0.04 per unit of risk. If you would invest  2,952  in Schwab Fundamental Emerging on September 3, 2024 and sell it today you would earn a total of  101.00  from holding Schwab Fundamental Emerging or generate 3.42% return on investment over 90 days.

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

Schwab Fundamental Emerging  vs.  iShares MSCI Emerging

Schwab Fundamental

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Emerging are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares MSCI Emerging

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Emerging are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Schwab Fundamental and IShares MSCI

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

The idea behind Schwab Fundamental Emerging and iShares MSCI Emerging 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.