Correlation Between United States and Charles Schwab

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

By analyzing existing cross correlation between United States Steel and The Charles Schwab, you can compare the effects of market volatilities on United States and Charles Schwab 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 United States with a short position of Charles Schwab. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Charles Schwab.

Diversification Opportunities for United States and Charles Schwab

0.72

Correlation Coefficient

United States  Charles Schwab

Poor diversification

The 3 months correlation between United and Charles is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and The Charles Schwab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles Schwab and United States 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 United States Steel are associated (or correlated) with Charles Schwab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles Schwab has no effect on the direction of United States i.e., United States and Charles Schwab go up and down completely randomly.

Pair Corralation between United States and Charles Schwab

Given the investment horizon of 90 days United States Steel is expected to under-perform the Charles Schwab. In addition to that, United States is 1.81 times more volatile than The Charles Schwab. It trades about -0.02 of its total potential returns per unit of risk. The Charles Schwab is currently generating about -0.03 per unit of volatility. If you would invest  169,460  in The Charles Schwab on November 28, 2024 and sell it today you would lose (6,660) from holding The Charles Schwab or give up 3.93% of portfolio value over 90 days.

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

United States Steel  vs.  The Charles Schwab

United States Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Charles Schwab

Risk-Adjusted Performance

Very Weak

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

Pair Trading with United States and Charles Schwab

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

The idea behind United States Steel and The Charles Schwab 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..