Correlation Between Schwab Target and Laudus Us

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

By analyzing existing cross correlation between Schwab Target 2040 and Laudus Large Cap, you can compare the effects of market volatilities on Schwab Target and Laudus Us 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 Target with a short position of Laudus Us. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Target and Laudus Us.

Diversification Opportunities for Schwab Target and Laudus Us

0.77

Correlation Coefficient

Schwab Target  Laudus Us

Poor diversification

The 3 months correlation between Schwab and Laudus is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Target 2040 and Laudus Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laudus Large Cap and Schwab Target 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 Target 2040 are associated (or correlated) with Laudus Us. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laudus Large Cap has no effect on the direction of Schwab Target i.e., Schwab Target and Laudus Us go up and down completely randomly.

Pair Corralation between Schwab Target and Laudus Us

Assuming the 90 days horizon Schwab Target 2040 is expected to generate 0.49 times more return on investment than Laudus Us. However, Schwab Target 2040 is 2.03 times less risky than Laudus Us. It trades about -0.1 of its potential returns per unit of risk. Laudus Large Cap is currently generating about -0.15 per unit of risk. If you would invest  1,916  in Schwab Target 2040 on December 4, 2024 and sell it today you would lose (87.00) from holding Schwab Target 2040 or give up 4.54% of portfolio value over 90 days.

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

Schwab Target 2040  vs.  Laudus Large Cap

Schwab Target 2040

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Target 2040 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Schwab Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Laudus Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Laudus Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Schwab Target and Laudus Us

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

The idea behind Schwab Target 2040 and Laudus Large Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.