Correlation Between IShares Russell and Schwab Small

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

By analyzing existing cross correlation between iShares Russell 2000 and Schwab Small Cap ETF, you can compare the effects of market volatilities on IShares Russell and Schwab Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Schwab Small.

Diversification Opportunities for IShares Russell and Schwab Small

1.0

Correlation Coefficient

IShares Russell  Schwab Small

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 2000 and Schwab Small Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap 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 2000 are associated (or correlated) with Schwab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Small Cap has no effect on the direction of IShares Russell i.e., IShares Russell and Schwab Small go up and down completely randomly.

Pair Corralation between IShares Russell and Schwab Small

Considering the 90-day investment horizon IShares Russell is expected to generate 1.01 times less return on investment than Schwab Small. In addition to that, IShares Russell is 1.08 times more volatile than Schwab Small Cap ETF. It trades about 0.17 of its total potential returns per unit of risk. Schwab Small Cap ETF is currently generating about 0.18 per unit of volatility. If you would invest  2,475  in Schwab Small Cap ETF on September 3, 2024 and sell it today you would earn a total of  345.00  from holding Schwab Small Cap ETF or generate 13.94% 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 2000  vs.  Schwab Small Cap ETF

iShares Russell 2000

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, IShares Russell displayed solid returns over the last few months and may actually be approaching a breakup point.

Schwab Small Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Small Cap ETF are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Schwab Small sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Russell and Schwab Small

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

The idea behind iShares Russell 2000 and Schwab Small Cap ETF 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.