Correlation Between Schwab Small-cap and Alps/alerian Energy

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

By analyzing existing cross correlation between Schwab Small Cap Index and Alpsalerian Energy Infrastructure, you can compare the effects of market volatilities on Schwab Small-cap and Alps/alerian Energy 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 Small-cap with a short position of Alps/alerian Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Alps/alerian Energy.

Diversification Opportunities for Schwab Small-cap and Alps/alerian Energy

0.35

Correlation Coefficient

Schwab Small-cap  Alps/alerian Energy

Weak diversification

The 3 months correlation between Schwab and Alps/alerian is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Alpsalerian Energy Infrastruct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alps/alerian Energy and Schwab Small-cap 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 Small Cap Index are associated (or correlated) with Alps/alerian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alps/alerian Energy has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Alps/alerian Energy go up and down completely randomly.

Pair Corralation between Schwab Small-cap and Alps/alerian Energy

Assuming the 90 days horizon Schwab Small Cap Index is expected to under-perform the Alps/alerian Energy. But the mutual fund apears to be less risky and, when comparing its historical volatility, Schwab Small Cap Index is 1.07 times less risky than Alps/alerian Energy. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Alpsalerian Energy Infrastructure is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,415  in Alpsalerian Energy Infrastructure on December 22, 2024 and sell it today you would earn a total of  88.00  from holding Alpsalerian Energy Infrastructure or generate 6.22% return on investment over 90 days.

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

Schwab Small Cap Index  vs.  Alpsalerian Energy Infrastruct

Schwab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Small Cap Index 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.

Alps/alerian Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alpsalerian Energy Infrastructure are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Alps/alerian Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Schwab Small-cap and Alps/alerian Energy

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

The idea behind Schwab Small Cap Index and Alpsalerian Energy Infrastructure 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.