Correlation Between SPDR Portfolio and Schwab Large

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

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

Diversification Opportunities for SPDR Portfolio and Schwab Large

0.96

Correlation Coefficient

SPDR Portfolio  Schwab Large

Almost no diversification

The 3 months correlation between SPDR and Schwab is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Schwab Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Large Cap and SPDR Portfolio 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 SPDR Portfolio SP are associated (or correlated) with Schwab Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Large Cap has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Schwab Large go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Schwab Large

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 1.21 times less return on investment than Schwab Large. But when comparing it to its historical volatility, SPDR Portfolio SP is 1.11 times less risky than Schwab Large. It trades about 0.13 of its potential returns per unit of risk. Schwab Large Cap Growth is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,342  in Schwab Large Cap Growth on September 26, 2024 and sell it today you would earn a total of  1,515  from holding Schwab Large Cap Growth or generate 112.89% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  Schwab Large Cap Growth

SPDR Portfolio SP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Schwab Large Cap

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with SPDR Portfolio and Schwab Large

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

The idea behind SPDR Portfolio SP and Schwab Large Cap Growth 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.