Correlation Between MicroSectors FANG and Schwab Long

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

By analyzing existing cross correlation between MicroSectors FANG Index and Schwab Long Term Treasury, you can compare the effects of market volatilities on MicroSectors FANG and Schwab Long 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 MicroSectors FANG with a short position of Schwab Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Schwab Long.

Diversification Opportunities for MicroSectors FANG and Schwab Long

-0.61

Correlation Coefficient

MicroSectors FANG  Schwab Long

Excellent diversification

The 3 months correlation between MicroSectors and Schwab is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Schwab Long Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Long Term and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Schwab Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Long Term has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Schwab Long go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Schwab Long

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 4.94 times more return on investment than Schwab Long. However, MicroSectors FANG is 4.94 times more volatile than Schwab Long Term Treasury. It trades about 0.12 of its potential returns per unit of risk. Schwab Long Term Treasury is currently generating about -0.01 per unit of risk. If you would invest  7,106  in MicroSectors FANG Index on October 10, 2024 and sell it today you would earn a total of  53,533  from holding MicroSectors FANG Index or generate 753.35% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  Schwab Long Term Treasury

MicroSectors FANG Index

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Schwab Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Long Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest sluggish performance, the Etf's technical 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 MicroSectors FANG and Schwab Long

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

The idea behind MicroSectors FANG Index and Schwab Long Term Treasury 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.