Correlation Between Schwab Mid and Schwab Large

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

Diversification Opportunities for Schwab Mid and Schwab Large

0.96

Correlation Coefficient

Schwab Mid  Schwab Large

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Mid Cap ETF and Schwab Large Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Large Cap and Schwab Mid 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 Mid 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 Mid i.e., Schwab Mid and Schwab Large go up and down completely randomly.

Pair Corralation between Schwab Mid and Schwab Large

Given the investment horizon of 90 days Schwab Mid is expected to generate 1.15 times less return on investment than Schwab Large. In addition to that, Schwab Mid is 1.23 times more volatile than Schwab Large Cap ETF. It trades about 0.14 of its total potential returns per unit of risk. Schwab Large Cap ETF is currently generating about 0.2 per unit of volatility. If you would invest  2,191  in Schwab Large Cap ETF on September 14, 2024 and sell it today you would earn a total of  199.00  from holding Schwab Large Cap ETF or generate 9.08% return on investment over 90 days.

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

Schwab Mid Cap ETF  vs.  Schwab Large Cap ETF

Schwab Mid Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Mid Cap ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Schwab Mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Schwab Large Cap

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Large Cap ETF are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, Schwab Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schwab Mid and Schwab Large

The main advantage of trading using opposite Schwab Mid and Schwab Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Mid 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 Mid Cap ETF and Schwab Large Cap 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.