Correlation Between Schwab Intermediate and Schwab Emerging

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

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

Diversification Opportunities for Schwab Intermediate and Schwab Emerging

0.45

Correlation Coefficient

Schwab Intermediate  Schwab Emerging

Very weak diversification

The 3 months correlation between Schwab and Schwab is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Intermediate Term Treas and Schwab Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Emerging Markets and Schwab Intermediate 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 Intermediate Term Treasury are associated (or correlated) with Schwab Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Emerging Markets has no effect on the direction of Schwab Intermediate i.e., Schwab Intermediate and Schwab Emerging go up and down completely randomly.

Pair Corralation between Schwab Intermediate and Schwab Emerging

Given the investment horizon of 90 days Schwab Intermediate is expected to generate 2.08 times less return on investment than Schwab Emerging. But when comparing it to its historical volatility, Schwab Intermediate Term Treasury is 2.51 times less risky than Schwab Emerging. It trades about 0.05 of its potential returns per unit of risk. Schwab Emerging Markets is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,295  in Schwab Emerging Markets on September 25, 2024 and sell it today you would earn a total of  396.00  from holding Schwab Emerging Markets or generate 17.25% return on investment over 90 days.

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

Schwab Intermediate Term Treas  vs.  Schwab Emerging Markets

Schwab Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Intermediate Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Schwab Intermediate is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Schwab Intermediate and Schwab Emerging

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

The idea behind Schwab Intermediate Term Treasury and Schwab Emerging Markets 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.