Correlation Between Schwab Fundamental and Vanguard Explorer

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

Diversification Opportunities for Schwab Fundamental and Vanguard Explorer

0.79

Correlation Coefficient

Schwab Fundamental  Vanguard Explorer

Poor diversification

The 3 months correlation between Schwab and Vanguard is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Large and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer 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 Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Schwab Fundamental and Vanguard Explorer

Assuming the 90 days horizon Schwab Fundamental Large is expected to generate 0.67 times more return on investment than Vanguard Explorer. However, Schwab Fundamental Large is 1.5 times less risky than Vanguard Explorer. It trades about -0.01 of its potential returns per unit of risk. Vanguard Explorer Fund is currently generating about -0.11 per unit of risk. If you would invest  2,783  in Schwab Fundamental Large on December 30, 2024 and sell it today you would lose (17.00) from holding Schwab Fundamental Large or give up 0.61% of portfolio value over 90 days.

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

Schwab Fundamental Large  vs.  Vanguard Explorer Fund

Schwab Fundamental Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Fundamental Large has generated negative risk-adjusted returns adding no value to fund investors. 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.

Vanguard Explorer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Explorer Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Schwab Fundamental and Vanguard Explorer

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

The idea behind Schwab Fundamental Large and Vanguard Explorer Fund 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.