Correlation Between Emerging Markets and Schwab Target

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

By analyzing existing cross correlation between The Emerging Markets and Schwab Target 2010, you can compare the effects of market volatilities on Emerging Markets and Schwab Target 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 Emerging Markets with a short position of Schwab Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Schwab Target.

Diversification Opportunities for Emerging Markets and Schwab Target

0.74

Correlation Coefficient

Emerging Markets  Schwab Target

Poor diversification

The 3 months correlation between Emerging and Schwab is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Emerging Markets and Schwab Target 2010 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Target 2010 and Emerging Markets 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 The Emerging Markets are associated (or correlated) with Schwab Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Target 2010 has no effect on the direction of Emerging Markets i.e., Emerging Markets and Schwab Target go up and down completely randomly.

Pair Corralation between Emerging Markets and Schwab Target

Assuming the 90 days horizon The Emerging Markets is expected to generate 1.59 times more return on investment than Schwab Target. However, Emerging Markets is 1.59 times more volatile than Schwab Target 2010. It trades about -0.03 of its potential returns per unit of risk. Schwab Target 2010 is currently generating about -0.1 per unit of risk. If you would invest  1,872  in The Emerging Markets on December 1, 2024 and sell it today you would lose (33.00) from holding The Emerging Markets or give up 1.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

The Emerging Markets  vs.  Schwab Target 2010

Emerging Markets

Risk-Adjusted Performance

Very Weak

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

Schwab Target 2010

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Target 2010 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Schwab Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerging Markets and Schwab Target

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

The idea behind The Emerging Markets and Schwab Target 2010 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.