Correlation Between Schwab International and IShares MSCI

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Can any of the company-specific risk be diversified away by investing in both Schwab International and IShares MSCI 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 IShares MSCI 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 IShares MSCI ACWI, you can compare the effects of market volatilities on Schwab International and IShares MSCI 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 IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and IShares MSCI.

Diversification Opportunities for Schwab International and IShares MSCI

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Schwab and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Equity and IShares MSCI ACWI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares MSCI ACWI 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares MSCI ACWI has no effect on the direction of Schwab International i.e., Schwab International and IShares MSCI go up and down completely randomly.

Pair Corralation between Schwab International and IShares MSCI

Given the investment horizon of 90 days Schwab International is expected to generate 1.1 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Schwab International Equity is 1.01 times less risky than IShares MSCI. It trades about 0.03 of its potential returns per unit of risk. IShares MSCI ACWI is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,401  in IShares MSCI ACWI on December 30, 2023 and sell it today you would earn a total of  1,612  from holding IShares MSCI ACWI or generate 17.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Schwab International Equity  vs.  IShares MSCI ACWI

 Performance 
       Timeline  
Schwab International 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Schwab International may actually be approaching a critical reversion point that can send shares even higher in April 2024.
IShares MSCI ACWI 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in IShares MSCI ACWI are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Schwab International and IShares MSCI Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Schwab International and IShares MSCI

The main advantage of trading using opposite Schwab International and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab International position performs unexpectedly, IShares MSCI 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 IShares MSCI will offset losses from the drop in IShares MSCI's long position.
The idea behind Schwab International Equity and IShares MSCI ACWI 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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