Correlation Between Schwab Government and Wasatch Micro

Can any of the company-specific risk be diversified away by investing in both Schwab Government and Wasatch Micro 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 Wasatch Micro 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 Wasatch Micro Cap, you can compare the effects of market volatilities on Schwab Government and Wasatch Micro 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 Wasatch Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Government and Wasatch Micro.

Diversification Opportunities for Schwab Government and Wasatch Micro

0.66

Correlation Coefficient

Schwab Government  Wasatch Micro

Poor diversification

The 3 months correlation between Schwab and Wasatch is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Government Money and Wasatch Micro Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Micro Cap 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 Wasatch Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Micro Cap has no effect on the direction of Schwab Government i.e., Schwab Government and Wasatch Micro go up and down completely randomly.

Pair Corralation between Schwab Government and Wasatch Micro

Assuming the 90 days horizon Schwab Government is expected to generate 13.03 times less return on investment than Wasatch Micro. But when comparing it to its historical volatility, Schwab Government Money is 9.18 times less risky than Wasatch Micro. It trades about 0.13 of its potential returns per unit of risk. Wasatch Micro Cap is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  390.00  in Wasatch Micro Cap on September 14, 2024 and sell it today you would earn a total of  53.00  from holding Wasatch Micro Cap or generate 13.59% return on investment over 90 days.

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

Schwab Government Money  vs.  Wasatch Micro Cap

Schwab Government Money

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Government Money are ranked lower than 9 (%) 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.

Wasatch Micro Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Micro Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wasatch Micro showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Schwab Government and Wasatch Micro

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

The idea behind Schwab Government Money and Wasatch Micro 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.