Correlation Between IShares Trust and Schwab Fundamental

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

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

Diversification Opportunities for IShares Trust and Schwab Fundamental

0.67

Correlation Coefficient

IShares Trust  Schwab Fundamental

Poor diversification

The 3 months correlation between IShares and Schwab is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Schwab Fundamental Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental Small and IShares Trust 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 iShares Trust 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 Small has no effect on the direction of IShares Trust i.e., IShares Trust and Schwab Fundamental go up and down completely randomly.

Pair Corralation between IShares Trust and Schwab Fundamental

Given the investment horizon of 90 days IShares Trust is expected to generate 3.17 times less return on investment than Schwab Fundamental. But when comparing it to its historical volatility, iShares Trust is 4.12 times less risky than Schwab Fundamental. It trades about 0.14 of its potential returns per unit of risk. Schwab Fundamental Small is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,681  in Schwab Fundamental Small on May 4, 2025 and sell it today you would earn a total of  194.00  from holding Schwab Fundamental Small or generate 7.24% return on investment over 90 days.

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

iShares Trust   vs.  Schwab Fundamental Small

iShares Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab Fundamental Small

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Small are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Schwab Fundamental may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with IShares Trust and Schwab Fundamental

The main advantage of trading using opposite IShares Trust and Schwab Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 iShares Trust and Schwab Fundamental Small 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.