Correlation Between Schwab Government and Princeton Premium

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

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

Diversification Opportunities for Schwab Government and Princeton Premium

-0.49

Correlation Coefficient

Schwab Government  Princeton Premium

Very good diversification

The 3 months correlation between Schwab and Princeton is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Government Money and Princeton Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Princeton Premium and Schwab Government 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 Government Money are associated (or correlated) with Princeton Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Princeton Premium has no effect on the direction of Schwab Government i.e., Schwab Government and Princeton Premium go up and down completely randomly.

Pair Corralation between Schwab Government and Princeton Premium

Assuming the 90 days horizon Schwab Government Money is expected to generate 5.45 times more return on investment than Princeton Premium. However, Schwab Government is 5.45 times more volatile than Princeton Premium. It trades about 0.23 of its potential returns per unit of risk. Princeton Premium is currently generating about 0.77 per unit of risk. If you would invest  99.00  in Schwab Government Money on October 23, 2024 and sell it today you would earn a total of  1.00  from holding Schwab Government Money or generate 1.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Schwab Government Money  vs.  Princeton Premium

Schwab Government Money

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Government Money are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Princeton Premium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Princeton Premium has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Princeton Premium 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 Government and Princeton Premium

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

The idea behind Schwab Government Money and Princeton Premium 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.