Correlation Between Schwab Markettrack and Schwab Balanced

Can any of the company-specific risk be diversified away by investing in both Schwab Markettrack 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 Markettrack 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 Markettrack All and Schwab Balanced Fund, you can compare the effects of market volatilities on Schwab Markettrack 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 Markettrack with a short position of Schwab Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Markettrack and Schwab Balanced.

Diversification Opportunities for Schwab Markettrack and Schwab Balanced

0.9

Correlation Coefficient

Schwab Markettrack  Schwab Balanced

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Markettrack All 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 Markettrack 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 Markettrack All 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 Markettrack i.e., Schwab Markettrack and Schwab Balanced go up and down completely randomly.

Pair Corralation between Schwab Markettrack and Schwab Balanced

Assuming the 90 days horizon Schwab Markettrack All is expected to generate 1.34 times more return on investment than Schwab Balanced. However, Schwab Markettrack is 1.34 times more volatile than Schwab Balanced Fund. It trades about -0.01 of its potential returns per unit of risk. Schwab Balanced Fund is currently generating about -0.07 per unit of risk. If you would invest  2,331  in Schwab Markettrack All on December 29, 2024 and sell it today you would lose (18.00) from holding Schwab Markettrack All or give up 0.77% of portfolio value over 90 days.

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

Schwab Markettrack All  vs.  Schwab Balanced Fund

Schwab Markettrack All

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Markettrack All has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Schwab Markettrack 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

Very Weak

Over the last 90 days Schwab Balanced Fund has generated negative risk-adjusted returns adding no value to fund investors. 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 Markettrack and Schwab Balanced

The main advantage of trading using opposite Schwab Markettrack and Schwab Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Markettrack 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 Markettrack All 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.