Correlation Between Schwab Small and Schwab REIT

Can any of the company-specific risk be diversified away by investing in both Schwab Small and Schwab REIT 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 REIT 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 REIT ETF, you can compare the effects of market volatilities on Schwab Small and Schwab REIT 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 REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small and Schwab REIT.

Diversification Opportunities for Schwab Small and Schwab REIT

-0.23

Correlation Coefficient

Schwab Small  Schwab REIT

Very good diversification

The 3 months correlation between Schwab and Schwab is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap ETF and Schwab REIT ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab REIT ETF 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 REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab REIT ETF has no effect on the direction of Schwab Small i.e., Schwab Small and Schwab REIT go up and down completely randomly.

Pair Corralation between Schwab Small and Schwab REIT

Given the investment horizon of 90 days Schwab Small Cap ETF is expected to under-perform the Schwab REIT. In addition to that, Schwab Small is 1.14 times more volatile than Schwab REIT ETF. It trades about -0.12 of its total potential returns per unit of risk. Schwab REIT ETF is currently generating about 0.05 per unit of volatility. If you would invest  2,074  in Schwab REIT ETF on December 28, 2024 and sell it today you would earn a total of  56.00  from holding Schwab REIT ETF or generate 2.7% return on investment over 90 days.

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

Schwab Small Cap ETF  vs.  Schwab REIT ETF

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 REIT ETF

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab REIT ETF are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Schwab REIT is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Schwab Small and Schwab REIT

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

The idea behind Schwab Small Cap ETF and Schwab REIT 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.