Correlation Between Vanguard Small and Schwab International

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

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

Diversification Opportunities for Vanguard Small and Schwab International

0.87

Correlation Coefficient

Vanguard Small  Schwab International

Very poor diversification

The 3 months correlation between Vanguard and Schwab is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Schwab International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab International and Vanguard Small 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 Small Cap Index are associated (or correlated) with Schwab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab International has no effect on the direction of Vanguard Small i.e., Vanguard Small and Schwab International go up and down completely randomly.

Pair Corralation between Vanguard Small and Schwab International

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 5.3 times less return on investment than Schwab International. In addition to that, Vanguard Small is 1.13 times more volatile than Schwab International Equity. It trades about 0.02 of its total potential returns per unit of risk. Schwab International Equity is currently generating about 0.11 per unit of volatility. If you would invest  3,883  in Schwab International Equity on March 5, 2024 and sell it today you would earn a total of  58.00  from holding Schwab International Equity or generate 1.49% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Schwab International Equity

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Schwab International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 7 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Small and Schwab International

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

The idea behind Vanguard Small Cap Index and Schwab International Equity 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.