Correlation Between Sp Smallcap and Schwab Target

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

By analyzing existing cross correlation between Sp Smallcap 600 and Schwab Target 2055, you can compare the effects of market volatilities on Sp Smallcap and Schwab Target 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 Sp Smallcap with a short position of Schwab Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Smallcap and Schwab Target.

Diversification Opportunities for Sp Smallcap and Schwab Target

0.57

Correlation Coefficient

Sp Smallcap  Schwab Target

Very weak diversification

The 3 months correlation between RYSVX and Schwab is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Schwab Target 2055 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Target 2055 and Sp Smallcap 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 Sp Smallcap 600 are associated (or correlated) with Schwab Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Target 2055 has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Schwab Target go up and down completely randomly.

Pair Corralation between Sp Smallcap and Schwab Target

Assuming the 90 days horizon Sp Smallcap 600 is expected to under-perform the Schwab Target. In addition to that, Sp Smallcap is 1.35 times more volatile than Schwab Target 2055. It trades about -0.14 of its total potential returns per unit of risk. Schwab Target 2055 is currently generating about -0.01 per unit of volatility. If you would invest  1,751  in Schwab Target 2055 on December 20, 2024 and sell it today you would lose (14.00) from holding Schwab Target 2055 or give up 0.8% of portfolio value over 90 days.

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

Sp Smallcap 600  vs.  Schwab Target 2055

Sp Smallcap 600

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sp Smallcap 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Schwab Target 2055

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Target 2055 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Schwab Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp Smallcap and Schwab Target

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

The idea behind Sp Smallcap 600 and Schwab Target 2055 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.