Correlation Between Schwab California and Schwab Balanced

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

By analyzing existing cross correlation between Schwab California Tax Free and Schwab Balanced Fund, you can compare the effects of market volatilities on Schwab California and Schwab Balanced 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 California with a short position of Schwab Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab California and Schwab Balanced.

Diversification Opportunities for Schwab California and Schwab Balanced

0.04

Correlation Coefficient

Schwab California  Schwab Balanced

Significant diversification

The 3 months correlation between Schwab and Schwab is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Schwab California Tax Free and Schwab Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Balanced and Schwab California 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 California Tax Free are associated (or correlated) with Schwab Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Balanced has no effect on the direction of Schwab California i.e., Schwab California and Schwab Balanced go up and down completely randomly.

Pair Corralation between Schwab California and Schwab Balanced

Assuming the 90 days horizon Schwab California is expected to generate 2.54 times less return on investment than Schwab Balanced. But when comparing it to its historical volatility, Schwab California Tax Free is 3.88 times less risky than Schwab Balanced. It trades about 0.09 of its potential returns per unit of risk. Schwab Balanced Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,505  in Schwab Balanced Fund on September 5, 2024 and sell it today you would earn a total of  289.00  from holding Schwab Balanced Fund or generate 19.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Schwab California Tax Free  vs.  Schwab Balanced Fund

Schwab California Tax

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab California Tax Free are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Balanced Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Schwab Balanced 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 California and Schwab Balanced

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

The idea behind Schwab California Tax Free and Schwab Balanced 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.