Correlation Between Schwab Monthly and Vanguard Wellesley

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

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

Diversification Opportunities for Schwab Monthly and Vanguard Wellesley

0.88

Correlation Coefficient

Schwab Monthly  Vanguard Wellesley

Very poor diversification

The 3 months correlation between Schwab and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Monthly Income and Vanguard Wellesley Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Wellesley Income and Schwab Monthly 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 Monthly Income are associated (or correlated) with Vanguard Wellesley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Wellesley Income has no effect on the direction of Schwab Monthly i.e., Schwab Monthly and Vanguard Wellesley go up and down completely randomly.

Pair Corralation between Schwab Monthly and Vanguard Wellesley

Assuming the 90 days horizon Schwab Monthly is expected to generate 1.16 times less return on investment than Vanguard Wellesley. In addition to that, Schwab Monthly is 1.22 times more volatile than Vanguard Wellesley Income. It trades about 0.19 of its total potential returns per unit of risk. Vanguard Wellesley Income is currently generating about 0.26 per unit of volatility. If you would invest  2,475  in Vanguard Wellesley Income on December 2, 2024 and sell it today you would earn a total of  91.00  from holding Vanguard Wellesley Income or generate 3.68% return on investment over 90 days.

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

Schwab Monthly Income  vs.  Vanguard Wellesley Income

Schwab Monthly Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Monthly Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Schwab Monthly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Wellesley Income

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Wellesley Income are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Wellesley 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 Monthly and Vanguard Wellesley

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

The idea behind Schwab Monthly Income and Vanguard Wellesley Income 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.