Correlation Between Schwab Emerging and SPDR SP

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

By analyzing existing cross correlation between Schwab Emerging Markets and SPDR SP World, you can compare the effects of market volatilities on Schwab Emerging and SPDR SP 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 Emerging with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Emerging and SPDR SP.

Diversification Opportunities for Schwab Emerging and SPDR SP

0.9

Correlation Coefficient

Schwab Emerging  SPDR SP

Almost no diversification

The 3 months correlation between Schwab and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Emerging Markets and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World and Schwab Emerging 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 Emerging Markets are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP World has no effect on the direction of Schwab Emerging i.e., Schwab Emerging and SPDR SP go up and down completely randomly.

Pair Corralation between Schwab Emerging and SPDR SP

Given the investment horizon of 90 days Schwab Emerging Markets is expected to generate 1.43 times more return on investment than SPDR SP. However, Schwab Emerging is 1.43 times more volatile than SPDR SP World. It trades about -0.12 of its potential returns per unit of risk. SPDR SP World is currently generating about -0.32 per unit of risk. If you would invest  2,721  in Schwab Emerging Markets on October 5, 2024 and sell it today you would lose (63.00) from holding Schwab Emerging Markets or give up 2.32% of portfolio value over 90 days.

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

Schwab Emerging Markets  vs.  SPDR SP World

Schwab Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

SPDR SP World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Schwab Emerging and SPDR SP

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

The idea behind Schwab Emerging Markets and SPDR SP World 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.