Correlation Between Schwab Emerging and Vanguard FTSE

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

Diversification Opportunities for Schwab Emerging and Vanguard FTSE

1.0

Correlation Coefficient

Schwab Emerging  Vanguard FTSE

No risk reduction

The 3 months correlation between Schwab and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Emerging Markets and Vanguard FTSE Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Emerging 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Emerging has no effect on the direction of Schwab Emerging i.e., Schwab Emerging and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Schwab Emerging and Vanguard FTSE

Given the investment horizon of 90 days Schwab Emerging Markets is expected to generate 1.0 times more return on investment than Vanguard FTSE. However, Schwab Emerging is 1.0 times more volatile than Vanguard FTSE Emerging. It trades about 0.04 of its potential returns per unit of risk. Vanguard FTSE Emerging is currently generating about 0.03 per unit of risk. If you would invest  2,683  in Schwab Emerging Markets on September 24, 2024 and sell it today you would earn a total of  20.00  from holding Schwab Emerging Markets or generate 0.75% return on investment over 90 days.

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

Schwab Emerging Markets  vs.  Vanguard FTSE Emerging

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 rather sound technical indicators, Schwab Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard FTSE Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Schwab Emerging and Vanguard FTSE

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

The idea behind Schwab Emerging Markets and Vanguard FTSE Emerging 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.