Correlation Between IShares Russell and Schwab Broad

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

By analyzing existing cross correlation between iShares Russell 1000 and Schwab Broad Market, you can compare the effects of market volatilities on IShares Russell and Schwab Broad 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 Russell with a short position of Schwab Broad. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Schwab Broad.

Diversification Opportunities for IShares Russell and Schwab Broad

1.0

Correlation Coefficient

IShares Russell  Schwab Broad

No risk reduction

The 3 months correlation between IShares and Schwab is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 1000 and Schwab Broad Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Broad Market and IShares Russell 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 Russell 1000 are associated (or correlated) with Schwab Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Broad Market has no effect on the direction of IShares Russell i.e., IShares Russell and Schwab Broad go up and down completely randomly.

Pair Corralation between IShares Russell and Schwab Broad

Considering the 90-day investment horizon iShares Russell 1000 is expected to generate 0.98 times more return on investment than Schwab Broad. However, iShares Russell 1000 is 1.02 times less risky than Schwab Broad. It trades about 0.11 of its potential returns per unit of risk. Schwab Broad Market is currently generating about 0.1 per unit of risk. If you would invest  21,864  in iShares Russell 1000 on October 22, 2024 and sell it today you would earn a total of  11,075  from holding iShares Russell 1000 or generate 50.65% return on investment over 90 days.

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

iShares Russell 1000  vs.  Schwab Broad Market

iShares Russell 1000

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Russell is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Schwab Broad Market

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with IShares Russell and Schwab Broad

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

The idea behind iShares Russell 1000 and Schwab Broad Market 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.