Correlation Between Schwab Health and Schwab 1000

Can any of the company-specific risk be diversified away by investing in both Schwab Health and Schwab 1000 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 Schwab 1000 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 Schwab 1000 Index, you can compare the effects of market volatilities on Schwab Health and Schwab 1000 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 Schwab 1000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Health and Schwab 1000.

Diversification Opportunities for Schwab Health and Schwab 1000

-0.8

Correlation Coefficient

Schwab Health  Schwab 1000

Pay attention - limited upside

The 3 months correlation between Schwab and Schwab is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Health Care and Schwab 1000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab 1000 Index 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 Schwab 1000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab 1000 Index has no effect on the direction of Schwab Health i.e., Schwab Health and Schwab 1000 go up and down completely randomly.

Pair Corralation between Schwab Health and Schwab 1000

Assuming the 90 days horizon Schwab Health Care is expected to under-perform the Schwab 1000. But the mutual fund apears to be less risky and, when comparing its historical volatility, Schwab Health Care is 1.06 times less risky than Schwab 1000. The mutual fund trades about -0.21 of its potential returns per unit of risk. The Schwab 1000 Index is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  11,867  in Schwab 1000 Index on September 4, 2024 and sell it today you would earn a total of  1,243  from holding Schwab 1000 Index or generate 10.47% return on investment over 90 days.

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

Schwab Health Care  vs.  Schwab 1000 Index

Schwab Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

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

Schwab 1000 Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab 1000 Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Schwab 1000 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schwab Health and Schwab 1000

The main advantage of trading using opposite Schwab Health and Schwab 1000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Health position performs unexpectedly, Schwab 1000 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 Schwab 1000 will offset losses from the drop in Schwab 1000's long position.

The idea behind Schwab Health Care and Schwab 1000 Index 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.