Correlation Between Schwab Strategic and First Trust

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

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

Diversification Opportunities for Schwab Strategic and First Trust

0.91

Correlation Coefficient

Schwab Strategic  First Trust

Almost no diversification

The 3 months correlation between Schwab and First is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Strategic Trust and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and Schwab Strategic 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 Strategic Trust are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Schwab Strategic i.e., Schwab Strategic and First Trust go up and down completely randomly.

Pair Corralation between Schwab Strategic and First Trust

Given the investment horizon of 90 days Schwab Strategic Trust is expected to under-perform the First Trust. In addition to that, Schwab Strategic is 2.08 times more volatile than First Trust NASDAQ. It trades about -0.1 of its total potential returns per unit of risk. First Trust NASDAQ is currently generating about -0.13 per unit of volatility. If you would invest  3,513  in First Trust NASDAQ on December 27, 2024 and sell it today you would lose (544.00) from holding First Trust NASDAQ or give up 15.49% of portfolio value over 90 days.

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

Schwab Strategic Trust  vs.  First Trust NASDAQ

Schwab Strategic Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Strategic Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

First Trust NASDAQ

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's essential indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with Schwab Strategic and First Trust

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

The idea behind Schwab Strategic Trust and First Trust NASDAQ 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.