Correlation Between Schwab Small-cap and Guidemark World

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

Diversification Opportunities for Schwab Small-cap and Guidemark World

0.35

Correlation Coefficient

Schwab Small-cap  Guidemark World

Weak diversification

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

Pair Corralation between Schwab Small-cap and Guidemark World

Assuming the 90 days horizon Schwab Small Cap Index is expected to under-perform the Guidemark World. In addition to that, Schwab Small-cap is 1.56 times more volatile than Guidemark World Ex Us. It trades about -0.28 of its total potential returns per unit of risk. Guidemark World Ex Us is currently generating about -0.36 per unit of volatility. If you would invest  1,118  in Guidemark World Ex Us on October 9, 2024 and sell it today you would lose (68.00) from holding Guidemark World Ex Us or give up 6.08% of portfolio value 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.  Guidemark World Ex Us

Schwab Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Small Cap Index are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guidemark World Ex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guidemark World Ex Us 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.

Pair Trading with Schwab Small-cap and Guidemark World

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

The idea behind Schwab Small Cap Index and Guidemark World Ex Us 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.