Correlation Between Schwab Large and Schwab International

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

By analyzing existing cross correlation between Schwab Large Cap ETF and Schwab International Equity, you can compare the effects of market volatilities on Schwab Large and Schwab International 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 Schwab International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Large and Schwab International.

Diversification Opportunities for Schwab Large and Schwab International

-0.35

Correlation Coefficient

Schwab Large  Schwab International

Very good diversification

The 3 months correlation between Schwab and Schwab is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Large Cap ETF and Schwab International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab International 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 ETF are associated (or correlated) with Schwab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab International has no effect on the direction of Schwab Large i.e., Schwab Large and Schwab International go up and down completely randomly.

Pair Corralation between Schwab Large and Schwab International

Given the investment horizon of 90 days Schwab Large Cap ETF is expected to under-perform the Schwab International. In addition to that, Schwab Large is 1.2 times more volatile than Schwab International Equity. It trades about -0.08 of its total potential returns per unit of risk. Schwab International Equity is currently generating about 0.15 per unit of volatility. If you would invest  1,851  in Schwab International Equity on December 28, 2024 and sell it today you would earn a total of  145.00  from holding Schwab International Equity or generate 7.83% return on investment over 90 days.

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

Schwab Large Cap ETF  vs.  Schwab International Equity

Schwab Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Large Cap ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Schwab Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Schwab International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Schwab Large and Schwab International

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

The idea behind Schwab Large Cap ETF and Schwab International Equity 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.