Correlation Between Vanguard Russell and Schwab Small

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

By analyzing existing cross correlation between Vanguard Russell 2000 and Schwab Small Cap ETF, you can compare the effects of market volatilities on Vanguard Russell and Schwab Small 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 Russell with a short position of Schwab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Russell and Schwab Small.

Diversification Opportunities for Vanguard Russell and Schwab Small

0.96

Correlation Coefficient

Vanguard Russell  Schwab Small

Almost no diversification

The 3 months correlation between Vanguard and Schwab is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Russell 2000 and Schwab Small Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Vanguard Russell 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 Russell 2000 are associated (or correlated) with Schwab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Small Cap has no effect on the direction of Vanguard Russell i.e., Vanguard Russell and Schwab Small go up and down completely randomly.

Pair Corralation between Vanguard Russell and Schwab Small

Assuming the 90 days horizon Vanguard Russell 2000 is expected to under-perform the Schwab Small. In addition to that, Vanguard Russell is 1.01 times more volatile than Schwab Small Cap ETF. It trades about -0.12 of its total potential returns per unit of risk. Schwab Small Cap ETF is currently generating about -0.12 per unit of volatility. If you would invest  2,578  in Schwab Small Cap ETF on December 29, 2024 and sell it today you would lose (230.00) from holding Schwab Small Cap ETF or give up 8.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Vanguard Russell 2000  vs.  Schwab Small Cap ETF

Vanguard Russell 2000

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Schwab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Small Cap ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Vanguard Russell and Schwab Small

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

The idea behind Vanguard Russell 2000 and Schwab Small Cap ETF 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.