Correlation Between Schwab Core and Schwab Target

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

By analyzing existing cross correlation between Schwab E Equity and Schwab Target 2030, you can compare the effects of market volatilities on Schwab Core and Schwab Target 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 Core with a short position of Schwab Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Core and Schwab Target.

Diversification Opportunities for Schwab Core and Schwab Target

0.82

Correlation Coefficient

Schwab Core  Schwab Target

Very poor diversification

The 3 months correlation between Schwab and Schwab is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Schwab E Equity and Schwab Target 2030 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Target 2030 and Schwab Core 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 E Equity are associated (or correlated) with Schwab Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Target 2030 has no effect on the direction of Schwab Core i.e., Schwab Core and Schwab Target go up and down completely randomly.

Pair Corralation between Schwab Core and Schwab Target

Assuming the 90 days horizon Schwab E Equity is expected to generate 1.69 times more return on investment than Schwab Target. However, Schwab Core is 1.69 times more volatile than Schwab Target 2030. It trades about 0.31 of its potential returns per unit of risk. Schwab Target 2030 is currently generating about 0.36 per unit of risk. If you would invest  2,451  in Schwab E Equity on September 4, 2024 and sell it today you would earn a total of  111.00  from holding Schwab E Equity or generate 4.53% return on investment over 90 days.

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

Schwab E Equity  vs.  Schwab Target 2030

Schwab E Equity

Risk-Adjusted Performance

14 of 100

Good

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

Schwab Target 2030

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Target 2030 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Schwab Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Core and Schwab Target

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

The idea behind Schwab E Equity and Schwab Target 2030 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.