Correlation Between Balanced Strategy and Schwab Government

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

By analyzing existing cross correlation between Balanced Strategy Fund and Schwab Government Money, you can compare the effects of market volatilities on Balanced Strategy and Schwab Government 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 Balanced Strategy with a short position of Schwab Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Strategy and Schwab Government.

Diversification Opportunities for Balanced Strategy and Schwab Government

-0.02

Correlation Coefficient

Balanced Strategy  Schwab Government

Good diversification

The 3 months correlation between Balanced and Schwab is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Strategy Fund and Schwab Government Money in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Government Money and Balanced Strategy 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 Balanced Strategy Fund are associated (or correlated) with Schwab Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Government Money has no effect on the direction of Balanced Strategy i.e., Balanced Strategy and Schwab Government go up and down completely randomly.

Pair Corralation between Balanced Strategy and Schwab Government

Assuming the 90 days horizon Balanced Strategy is expected to generate 16.21 times less return on investment than Schwab Government. But when comparing it to its historical volatility, Balanced Strategy Fund is 32.77 times less risky than Schwab Government. It trades about 0.07 of its potential returns per unit of risk. Schwab Government Money is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Schwab Government Money on October 9, 2024 and sell it today you would earn a total of  8.00  from holding Schwab Government Money or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Balanced Strategy Fund  vs.  Schwab Government Money

Balanced Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balanced Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Balanced Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab Government Money

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Government Money are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Balanced Strategy and Schwab Government

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

The idea behind Balanced Strategy Fund and Schwab Government Money 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.