Correlation Between Xtrackers USD and Schwab Fundamental

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

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

Diversification Opportunities for Xtrackers USD and Schwab Fundamental

0.74

Correlation Coefficient

Xtrackers USD  Schwab Fundamental

Poor diversification

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

Pair Corralation between Xtrackers USD and Schwab Fundamental

Given the investment horizon of 90 days Xtrackers USD is expected to generate 6.49 times less return on investment than Schwab Fundamental. But when comparing it to its historical volatility, Xtrackers USD High is 3.06 times less risky than Schwab Fundamental. It trades about 0.07 of its potential returns per unit of risk. Schwab Fundamental International is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,405  in Schwab Fundamental International on December 30, 2024 and sell it today you would earn a total of  253.00  from holding Schwab Fundamental International or generate 7.43% return on investment over 90 days.

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

Xtrackers USD High  vs.  Schwab Fundamental Internation

Xtrackers USD High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers USD High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Xtrackers USD is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Schwab Fundamental

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Schwab Fundamental may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Xtrackers USD and Schwab Fundamental

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

The idea behind Xtrackers USD High and Schwab Fundamental International 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 Transaction History module to view history of all your transactions and understand their impact on performance.