Correlation Between SPDR SP and Schwab Fundamental

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

Diversification Opportunities for SPDR SP and Schwab Fundamental

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between SPDR and Schwab is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Dividend and Schwab Fundamental US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental and SPDR SP 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 SPDR SP Dividend 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 has no effect on the direction of SPDR SP i.e., SPDR SP and Schwab Fundamental go up and down completely randomly.

Pair Corralation between SPDR SP and Schwab Fundamental

Considering the 90-day investment horizon SPDR SP Dividend is expected to generate 1.14 times more return on investment than Schwab Fundamental. However, SPDR SP is 1.14 times more volatile than Schwab Fundamental US. It trades about 0.41 of its potential returns per unit of risk. Schwab Fundamental US is currently generating about 0.43 per unit of risk. If you would invest  12,461  in SPDR SP Dividend on December 29, 2023 and sell it today you would earn a total of  628.00  from holding SPDR SP Dividend or generate 5.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

SPDR SP Dividend  vs.  Schwab Fundamental US

 Performance 
       Timeline  
SPDR SP Dividend 

Risk-Adjusted Performance

10 of 100

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

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental US are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Schwab Fundamental may actually be approaching a critical reversion point that can send shares even higher in April 2024.

SPDR SP and Schwab Fundamental Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR SP and Schwab Fundamental

The main advantage of trading using opposite SPDR SP and Schwab Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP Dividend and Schwab Fundamental US 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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