Correlation Between Vanguard Mid and Schwab Strategic

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

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

Diversification Opportunities for Vanguard Mid and Schwab Strategic

0.97

Correlation Coefficient

Vanguard Mid  Schwab Strategic

Almost no diversification

The 3 months correlation between Vanguard and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and Schwab Strategic Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Strategic Trust and Vanguard Mid 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 Vanguard Mid Cap Index are associated (or correlated) with Schwab Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Strategic Trust has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Schwab Strategic go up and down completely randomly.

Pair Corralation between Vanguard Mid and Schwab Strategic

Allowing for the 90-day total investment horizon Vanguard Mid is expected to generate 1.1 times less return on investment than Schwab Strategic. But when comparing it to its historical volatility, Vanguard Mid Cap Index is 1.29 times less risky than Schwab Strategic. It trades about 0.08 of its potential returns per unit of risk. Schwab Strategic Trust is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,962  in Schwab Strategic Trust on September 14, 2024 and sell it today you would earn a total of  862.00  from holding Schwab Strategic Trust or generate 43.93% return on investment over 90 days.

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

Vanguard Mid Cap Index  vs.  Schwab Strategic Trust

Vanguard Mid Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Vanguard Mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Schwab Strategic Trust

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Strategic Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, Schwab Strategic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Mid and Schwab Strategic

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

The idea behind Vanguard Mid Cap Index and Schwab Strategic Trust 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.