Correlation Between IShares International and Schwab Fundamental

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

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

Diversification Opportunities for IShares International and Schwab Fundamental

0.97

Correlation Coefficient

IShares International  Schwab Fundamental

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Select and Schwab Fundamental Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental and IShares International 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 International Select 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 IShares International i.e., IShares International and Schwab Fundamental go up and down completely randomly.

Pair Corralation between IShares International and Schwab Fundamental

Considering the 90-day investment horizon iShares International Select is expected to generate 1.03 times more return on investment than Schwab Fundamental. However, IShares International is 1.03 times more volatile than Schwab Fundamental International. It trades about -0.04 of its potential returns per unit of risk. Schwab Fundamental International is currently generating about -0.04 per unit of risk. If you would invest  2,915  in iShares International Select on September 4, 2024 and sell it today you would lose (61.00) from holding iShares International Select or give up 2.09% of portfolio value over 90 days.

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

iShares International Select  vs.  Schwab Fundamental Internation

iShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares International Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, IShares International is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Schwab Fundamental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Fundamental International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares International and Schwab Fundamental

The main advantage of trading using opposite IShares International and Schwab Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares International 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 iShares International Select 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.