Correlation Between Charles Schwab and Align Technology

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

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

Diversification Opportunities for Charles Schwab and Align Technology

0.23

Correlation Coefficient

Charles Schwab  Align Technology

Modest diversification

The 3 months correlation between Charles and Align is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Charles Schwab and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology and Charles Schwab 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 The Charles Schwab are associated (or correlated) with Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of Charles Schwab i.e., Charles Schwab and Align Technology go up and down completely randomly.

Pair Corralation between Charles Schwab and Align Technology

Assuming the 90 days horizon The Charles Schwab is expected to under-perform the Align Technology. But the stock apears to be less risky and, when comparing its historical volatility, The Charles Schwab is 1.3 times less risky than Align Technology. The stock trades about -0.27 of its potential returns per unit of risk. The Align Technology is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  21,660  in Align Technology on September 28, 2024 and sell it today you would lose (1,785) from holding Align Technology or give up 8.24% of portfolio value over 90 days.

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

The Charles Schwab  vs.  Align Technology

Charles Schwab

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Charles Schwab are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Charles Schwab reported solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Charles Schwab and Align Technology

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

The idea behind The Charles Schwab and Align Technology 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.