Correlation Between Vanguard and Schwab Dividend

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

By analyzing existing cross correlation between Vanguard SP 500 and Schwab Dividend Equity, you can compare the effects of market volatilities on Vanguard and Schwab Dividend 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 with a short position of Schwab Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Schwab Dividend.

Diversification Opportunities for Vanguard and Schwab Dividend

0.9

Correlation Coefficient

Vanguard  Schwab Dividend

Almost no diversification

The 3 months correlation between Vanguard and Schwab is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Schwab Dividend Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Dividend Equity and Vanguard 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 SP 500 are associated (or correlated) with Schwab Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Dividend Equity has no effect on the direction of Vanguard i.e., Vanguard and Schwab Dividend go up and down completely randomly.

Pair Corralation between Vanguard and Schwab Dividend

Considering the 90-day investment horizon Vanguard SP 500 is expected to under-perform the Schwab Dividend. In addition to that, Vanguard is 1.06 times more volatile than Schwab Dividend Equity. It trades about -0.05 of its total potential returns per unit of risk. Schwab Dividend Equity is currently generating about -0.04 per unit of volatility. If you would invest  7,778  in Schwab Dividend Equity on February 2, 2024 and sell it today you would lose (89.00) from holding Schwab Dividend Equity or give up 1.14% of portfolio value over 90 days.

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

Vanguard SP 500  vs.  Schwab Dividend Equity

Vanguard SP 500

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Schwab Dividend Equity

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Dividend Equity are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Schwab Dividend is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard and Schwab Dividend

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

The idea behind Vanguard SP 500 and Schwab Dividend 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.