Correlation Between Schwab Small and Schwab Large

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

By analyzing existing cross correlation between Schwab Small Cap ETF and Schwab Large Cap Growth, you can compare the effects of market volatilities on Schwab Small and Schwab Large 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 Schwab Small with a short position of Schwab Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small and Schwab Large.

Diversification Opportunities for Schwab Small and Schwab Large

0.97

Correlation Coefficient

Schwab Small  Schwab Large

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap ETF and Schwab Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Large Cap and Schwab Small 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 Schwab Small Cap ETF are associated (or correlated) with Schwab Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Large Cap has no effect on the direction of Schwab Small i.e., Schwab Small and Schwab Large go up and down completely randomly.

Pair Corralation between Schwab Small and Schwab Large

Given the investment horizon of 90 days Schwab Small Cap ETF is expected to generate 0.82 times more return on investment than Schwab Large. However, Schwab Small Cap ETF is 1.23 times less risky than Schwab Large. It trades about -0.09 of its potential returns per unit of risk. Schwab Large Cap Growth is currently generating about -0.1 per unit of risk. If you would invest  2,578  in Schwab Small Cap ETF on December 29, 2024 and sell it today you would lose (179.00) from holding Schwab Small Cap ETF or give up 6.94% of portfolio value over 90 days.

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

Schwab Small Cap ETF  vs.  Schwab Large Cap Growth

Schwab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Small Cap ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Schwab Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Large Cap Growth has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Schwab Small and Schwab Large

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

The idea behind Schwab Small Cap ETF and Schwab Large Cap Growth 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..