Correlation Between First Trust and Schwab Strategic

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

By analyzing existing cross correlation between First Trust Indxx and Schwab Strategic Trust, you can compare the effects of market volatilities on First Trust and Schwab Strategic 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 First Trust with a short position of Schwab Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Schwab Strategic.

Diversification Opportunities for First Trust and Schwab Strategic

-0.47

Correlation Coefficient

First Trust  Schwab Strategic

Very good diversification

The 3 months correlation between First and Schwab is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Schwab Strategic Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Strategic Trust and First Trust 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 First Trust Indxx are associated (or correlated) with Schwab Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Strategic Trust has no effect on the direction of First Trust i.e., First Trust and Schwab Strategic go up and down completely randomly.

Pair Corralation between First Trust and Schwab Strategic

Given the investment horizon of 90 days First Trust Indxx is expected to generate 0.24 times more return on investment than Schwab Strategic. However, First Trust Indxx is 4.2 times less risky than Schwab Strategic. It trades about 0.03 of its potential returns per unit of risk. Schwab Strategic Trust is currently generating about -0.07 per unit of risk. If you would invest  4,934  in First Trust Indxx on December 27, 2024 and sell it today you would earn a total of  34.00  from holding First Trust Indxx or generate 0.69% return on investment over 90 days.

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

First Trust Indxx  vs.  Schwab Strategic Trust

First Trust Indxx

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Schwab Strategic Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Strategic Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with First Trust and Schwab Strategic

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

The idea behind First Trust Indxx and Schwab Strategic Trust 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.