Correlation Between Vanguard High and Schwab Broad

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

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

Diversification Opportunities for Vanguard High and Schwab Broad

0.75

Correlation Coefficient

Vanguard High  Schwab Broad

Poor diversification

The 3 months correlation between Vanguard and Schwab is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Dividend and Schwab Broad Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Broad Market and Vanguard High 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 High Dividend are associated (or correlated) with Schwab Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Broad Market has no effect on the direction of Vanguard High i.e., Vanguard High and Schwab Broad go up and down completely randomly.

Pair Corralation between Vanguard High and Schwab Broad

Considering the 90-day investment horizon Vanguard High is expected to generate 1.33 times less return on investment than Schwab Broad. But when comparing it to its historical volatility, Vanguard High Dividend is 1.19 times less risky than Schwab Broad. It trades about 0.1 of its potential returns per unit of risk. Schwab Broad Market is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,829  in Schwab Broad Market on October 7, 2024 and sell it today you would earn a total of  466.00  from holding Schwab Broad Market or generate 25.48% return on investment over 90 days.

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

Vanguard High Dividend  vs.  Schwab Broad Market

Vanguard High Dividend

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard High Dividend are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard High is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Schwab Broad Market

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Broad Market are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Schwab Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard High and Schwab Broad

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

The idea behind Vanguard High Dividend and Schwab Broad Market 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.