Correlation Between Schwab Health and Omni Small-cap

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

By analyzing existing cross correlation between Schwab Health Care and Omni Small Cap Value, you can compare the effects of market volatilities on Schwab Health and Omni Small-cap 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 Health with a short position of Omni Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Health and Omni Small-cap.

Diversification Opportunities for Schwab Health and Omni Small-cap

0.04

Correlation Coefficient

Schwab Health  Omni Small-cap

Significant diversification

The 3 months correlation between Schwab and Omni is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Health Care and Omni Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omni Small Cap and Schwab Health 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 Health Care are associated (or correlated) with Omni Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omni Small Cap has no effect on the direction of Schwab Health i.e., Schwab Health and Omni Small-cap go up and down completely randomly.

Pair Corralation between Schwab Health and Omni Small-cap

Assuming the 90 days horizon Schwab Health Care is expected to generate 0.67 times more return on investment than Omni Small-cap. However, Schwab Health Care is 1.49 times less risky than Omni Small-cap. It trades about 0.18 of its potential returns per unit of risk. Omni Small Cap Value is currently generating about -0.11 per unit of risk. If you would invest  2,320  in Schwab Health Care on December 20, 2024 and sell it today you would earn a total of  187.00  from holding Schwab Health Care or generate 8.06% return on investment over 90 days.

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

Schwab Health Care  vs.  Omni Small Cap Value

Schwab Health Care

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Health Care are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Schwab Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Omni Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Omni Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Schwab Health and Omni Small-cap

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

The idea behind Schwab Health Care and Omni Small Cap Value 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.