Correlation Between IShares Core and Schwab Dividend

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

By analyzing existing cross correlation between iShares Core High and Schwab Dividend Equity, you can compare the effects of market volatilities on IShares Core and Schwab Dividend 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 IShares Core with a short position of Schwab Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Schwab Dividend.

Diversification Opportunities for IShares Core and Schwab Dividend

0.93

Correlation Coefficient

IShares Core  Schwab Dividend

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core High and Schwab Dividend Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Dividend Equity and IShares Core 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 iShares Core High are associated (or correlated) with Schwab Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Dividend Equity has no effect on the direction of IShares Core i.e., IShares Core and Schwab Dividend go up and down completely randomly.

Pair Corralation between IShares Core and Schwab Dividend

Considering the 90-day investment horizon IShares Core is expected to generate 1.79 times less return on investment than Schwab Dividend. But when comparing it to its historical volatility, iShares Core High is 1.22 times less risky than Schwab Dividend. It trades about 0.11 of its potential returns per unit of risk. Schwab Dividend Equity is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,768  in Schwab Dividend Equity on September 1, 2024 and sell it today you would earn a total of  185.00  from holding Schwab Dividend Equity or generate 6.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares Core High  vs.  Schwab Dividend Equity

iShares Core High

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core High are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, IShares Core is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Schwab Dividend Equity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Dividend Equity are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Schwab Dividend may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Core and Schwab Dividend

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

The idea behind iShares Core High and Schwab Dividend Equity 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.