Correlation Between Schwab Large and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Schwab Large and Nasdaq 100 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 Large and Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Schwab Large Cap Growth and Nasdaq 100, you can compare the effects of market volatilities on Schwab Large and Nasdaq 100 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 Large with a short position of Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Large and Nasdaq 100.

Diversification Opportunities for Schwab Large and Nasdaq 100

0.99

Correlation Coefficient

Schwab Large  Nasdaq 100

No risk reduction

The 3 months correlation between Schwab and Nasdaq is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Large Cap Growth and Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 and Schwab Large 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 Large Cap Growth are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 has no effect on the direction of Schwab Large i.e., Schwab Large and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Schwab Large and Nasdaq 100

Given the investment horizon of 90 days Schwab Large is expected to generate 1.14 times less return on investment than Nasdaq 100. But when comparing it to its historical volatility, Schwab Large Cap Growth is 1.07 times less risky than Nasdaq 100. It trades about 0.15 of its potential returns per unit of risk. Nasdaq 100 is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,092,290  in Nasdaq 100 on September 27, 2024 and sell it today you would earn a total of  84,541  from holding Nasdaq 100 or generate 4.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Schwab Large Cap Growth  vs.  Nasdaq 100

Pair Trading with Schwab Large and Nasdaq 100

The main advantage of trading using opposite Schwab Large and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Large position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Schwab Large Cap Growth and Nasdaq 100 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.