Correlation Between Schwab Large and Schwab REIT

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

Diversification Opportunities for Schwab Large and Schwab REIT

-0.12

Correlation Coefficient

Schwab Large  Schwab REIT

Good diversification

The 3 months correlation between Schwab and Schwab is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Large Cap ETF and Schwab REIT ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab REIT ETF 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 REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab REIT ETF has no effect on the direction of Schwab Large i.e., Schwab Large and Schwab REIT go up and down completely randomly.

Pair Corralation between Schwab Large and Schwab REIT

Given the investment horizon of 90 days Schwab Large Cap ETF is expected to generate 0.86 times more return on investment than Schwab REIT. However, Schwab Large Cap ETF is 1.16 times less risky than Schwab REIT. It trades about 0.23 of its potential returns per unit of risk. Schwab REIT ETF is currently generating about 0.06 per unit of risk. If you would invest  2,154  in Schwab Large Cap ETF on September 2, 2024 and sell it today you would earn a total of  235.00  from holding Schwab Large Cap ETF or generate 10.91% 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 REIT ETF

Schwab Large Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Large Cap ETF are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Schwab Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Schwab REIT ETF

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab REIT ETF are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Schwab REIT is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Schwab Large and Schwab REIT

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

The idea behind Schwab Large Cap ETF and Schwab REIT 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.