Correlation Between IShares Core and Schwab International

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

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

Diversification Opportunities for IShares Core and Schwab International

0.6

Correlation Coefficient

IShares Core  Schwab International

Poor diversification

The 3 months correlation between IShares and Schwab is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Schwab International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab International 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 SP are associated (or correlated) with Schwab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab International has no effect on the direction of IShares Core i.e., IShares Core and Schwab International go up and down completely randomly.

Pair Corralation between IShares Core and Schwab International

Given the investment horizon of 90 days iShares Core SP is expected to generate 0.99 times more return on investment than Schwab International. However, iShares Core SP is 1.01 times less risky than Schwab International. It trades about 0.12 of its potential returns per unit of risk. Schwab International Equity is currently generating about 0.07 per unit of risk. If you would invest  8,306  in iShares Core SP on December 2, 2024 and sell it today you would earn a total of  4,700  from holding iShares Core SP or generate 56.59% return on investment over 90 days.

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

iShares Core SP  vs.  Schwab International Equity

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Core is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Schwab International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Core and Schwab International

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

The idea behind iShares Core SP and Schwab International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.