Correlation Between Schwab International and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Schwab International and SPDR SP 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 Schwab International and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab International Equity and SPDR SP World, you can compare the effects of market volatilities on Schwab International and SPDR SP 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 Schwab International with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and SPDR SP.

Diversification Opportunities for Schwab International and SPDR SP

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Schwab and SPDR is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Equity and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World and Schwab International 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 Schwab International Equity are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP World has no effect on the direction of Schwab International i.e., Schwab International and SPDR SP go up and down completely randomly.

Pair Corralation between Schwab International and SPDR SP

Given the investment horizon of 90 days Schwab International Equity is expected to generate 0.99 times more return on investment than SPDR SP. However, Schwab International Equity is 1.01 times less risky than SPDR SP. It trades about 0.25 of its potential returns per unit of risk. SPDR SP World is currently generating about 0.25 per unit of risk. If you would invest  3,780  in Schwab International Equity on December 29, 2023 and sell it today you would earn a total of  122.00  from holding Schwab International Equity or generate 3.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Schwab International Equity  vs.  SPDR SP World

 Performance 
       Timeline  
Schwab International 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
SPDR SP World 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, SPDR SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Schwab International and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Schwab International and SPDR SP

The main advantage of trading using opposite Schwab International and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab International position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.
The idea behind Schwab International Equity and SPDR SP World 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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