Correlation Between Schwab Balanced and Schwab Short-term

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

By analyzing existing cross correlation between Schwab Balanced Fund and Schwab Short Term Bond, you can compare the effects of market volatilities on Schwab Balanced and Schwab Short-term 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 Balanced with a short position of Schwab Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Balanced and Schwab Short-term.

Diversification Opportunities for Schwab Balanced and Schwab Short-term

-0.64

Correlation Coefficient

Schwab Balanced  Schwab Short-term

Excellent diversification

The 3 months correlation between Schwab and Schwab is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Balanced Fund and Schwab Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Short Term and Schwab Balanced 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 Balanced Fund are associated (or correlated) with Schwab Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Short Term has no effect on the direction of Schwab Balanced i.e., Schwab Balanced and Schwab Short-term go up and down completely randomly.

Pair Corralation between Schwab Balanced and Schwab Short-term

Assuming the 90 days horizon Schwab Balanced Fund is expected to generate 3.2 times more return on investment than Schwab Short-term. However, Schwab Balanced is 3.2 times more volatile than Schwab Short Term Bond. It trades about 0.05 of its potential returns per unit of risk. Schwab Short Term Bond is currently generating about 0.09 per unit of risk. If you would invest  1,422  in Schwab Balanced Fund on December 29, 2024 and sell it today you would earn a total of  209.00  from holding Schwab Balanced Fund or generate 14.7% return on investment over 90 days.

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

Schwab Balanced Fund  vs.  Schwab Short Term Bond

Schwab Balanced

Risk-Adjusted Performance

Very Weak

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

Schwab Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Short Term Bond are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Schwab Short-term 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 Balanced and Schwab Short-term

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

The idea behind Schwab Balanced Fund and Schwab Short Term Bond 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.