Correlation Between Schwab Fundamental and SPDR SP

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

Diversification Opportunities for Schwab Fundamental and SPDR SP

0.49

Correlation Coefficient

Schwab Fundamental  SPDR SP

Very weak diversification

The 3 months correlation between Schwab and SPDR is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Emerging and SPDR SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Emerging has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and SPDR SP go up and down completely randomly.

Pair Corralation between Schwab Fundamental and SPDR SP

Given the investment horizon of 90 days Schwab Fundamental Emerging is expected to generate 1.1 times more return on investment than SPDR SP. However, Schwab Fundamental is 1.1 times more volatile than SPDR SP Emerging. It trades about 0.11 of its potential returns per unit of risk. SPDR SP Emerging is currently generating about -0.03 per unit of risk. If you would invest  2,933  in Schwab Fundamental Emerging on December 27, 2024 and sell it today you would earn a total of  182.00  from holding Schwab Fundamental Emerging or generate 6.21% return on investment over 90 days.

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

Schwab Fundamental Emerging  vs.  SPDR SP Emerging

Schwab Fundamental

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Emerging are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Schwab Fundamental may actually be approaching a critical reversion point that can send shares even higher in April 2025.

SPDR SP Emerging

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Fundamental and SPDR SP

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

The idea behind Schwab Fundamental Emerging and SPDR SP 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.