Correlation Between Schwab Fundamental and Vanguard Russell

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

By analyzing existing cross correlation between Schwab Fundamental Large and Vanguard Russell 2000, you can compare the effects of market volatilities on Schwab Fundamental and Vanguard Russell 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 Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and Vanguard Russell.

Diversification Opportunities for Schwab Fundamental and Vanguard Russell

0.59

Correlation Coefficient

Schwab Fundamental  Vanguard Russell

Very weak diversification

The 3 months correlation between Schwab and Vanguard is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Large and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 Large are associated (or correlated) with Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and Vanguard Russell go up and down completely randomly.

Pair Corralation between Schwab Fundamental and Vanguard Russell

Given the investment horizon of 90 days Schwab Fundamental Large is expected to generate 0.66 times more return on investment than Vanguard Russell. However, Schwab Fundamental Large is 1.5 times less risky than Vanguard Russell. It trades about -0.01 of its potential returns per unit of risk. Vanguard Russell 2000 is currently generating about -0.12 per unit of risk. If you would invest  2,354  in Schwab Fundamental Large on December 29, 2024 and sell it today you would lose (16.00) from holding Schwab Fundamental Large or give up 0.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Schwab Fundamental Large  vs.  Vanguard Russell 2000

Schwab Fundamental Large

Risk-Adjusted Performance

Weak

Over the last 90 days Schwab Fundamental Large has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly 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.

Vanguard Russell 2000

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Schwab Fundamental and Vanguard Russell

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

The idea behind Schwab Fundamental Large and Vanguard Russell 2000 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.