Correlation Between Schwab Fundamental and Schwab 1000

Can any of the company-specific risk be diversified away by investing in both Schwab Fundamental and Schwab 1000 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 Fundamental and Schwab 1000 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Schwab Fundamental Large and Schwab 1000 Index, you can compare the effects of market volatilities on Schwab Fundamental and Schwab 1000 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 Fundamental with a short position of Schwab 1000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and Schwab 1000.

Diversification Opportunities for Schwab Fundamental and Schwab 1000

0.95

Correlation Coefficient

Schwab Fundamental  Schwab 1000

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Large and Schwab 1000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab 1000 Index and Schwab Fundamental 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 Fundamental Large are associated (or correlated) with Schwab 1000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab 1000 Index has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and Schwab 1000 go up and down completely randomly.

Pair Corralation between Schwab Fundamental and Schwab 1000

Assuming the 90 days horizon Schwab Fundamental is expected to generate 1.31 times less return on investment than Schwab 1000. But when comparing it to its historical volatility, Schwab Fundamental Large is 1.05 times less risky than Schwab 1000. It trades about 0.15 of its potential returns per unit of risk. Schwab 1000 Index is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  12,100  in Schwab 1000 Index on September 13, 2024 and sell it today you would earn a total of  1,001  from holding Schwab 1000 Index or generate 8.27% return on investment over 90 days.

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

Schwab Fundamental Large  vs.  Schwab 1000 Index

Schwab Fundamental Large

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Large are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Fundamental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab 1000 Index

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab 1000 Index are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Schwab 1000 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schwab Fundamental and Schwab 1000

The main advantage of trading using opposite Schwab Fundamental and Schwab 1000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Fundamental position performs unexpectedly, Schwab 1000 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 1000 will offset losses from the drop in Schwab 1000's long position.

The idea behind Schwab Fundamental Large and Schwab 1000 Index 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.