Correlation Between Vanguard Value and Schwab Fundamental

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

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

Diversification Opportunities for Vanguard Value and Schwab Fundamental

0.86

Correlation Coefficient

Vanguard Value  Schwab Fundamental

Very poor diversification

The 3 months correlation between Vanguard and Schwab is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Schwab Fundamental Broad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental Broad and Vanguard Value 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 Value Index are associated (or correlated) with Schwab Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Fundamental Broad has no effect on the direction of Vanguard Value i.e., Vanguard Value and Schwab Fundamental go up and down completely randomly.

Pair Corralation between Vanguard Value and Schwab Fundamental

Considering the 90-day investment horizon Vanguard Value is expected to generate 1.14 times less return on investment than Schwab Fundamental. But when comparing it to its historical volatility, Vanguard Value Index is 1.1 times less risky than Schwab Fundamental. It trades about 0.1 of its potential returns per unit of risk. Schwab Fundamental Broad is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,956  in Schwab Fundamental Broad on October 9, 2024 and sell it today you would earn a total of  388.00  from holding Schwab Fundamental Broad or generate 19.84% return on investment over 90 days.

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

Vanguard Value Index  vs.  Schwab Fundamental Broad

Vanguard Value Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Schwab Fundamental Broad

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Broad are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Value and Schwab Fundamental

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

The idea behind Vanguard Value Index and Schwab Fundamental Broad 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.