Correlation Between Mid Cap and Schwab Small

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

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

Diversification Opportunities for Mid Cap and Schwab Small

0.97

Correlation Coefficient

Mid Cap  Schwab Small

Almost no diversification

The 3 months correlation between Mid and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth Profund and Schwab Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Mid Cap 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 Mid Cap Growth Profund are associated (or correlated) with Schwab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Small Cap has no effect on the direction of Mid Cap i.e., Mid Cap and Schwab Small go up and down completely randomly.

Pair Corralation between Mid Cap and Schwab Small

Assuming the 90 days horizon Mid Cap is expected to generate 1.03 times less return on investment than Schwab Small. But when comparing it to its historical volatility, Mid Cap Growth Profund is 1.12 times less risky than Schwab Small. It trades about 0.03 of its potential returns per unit of risk. Schwab Small Cap Equity is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,646  in Schwab Small Cap Equity on May 4, 2025 and sell it today you would earn a total of  252.00  from holding Schwab Small Cap Equity or generate 15.31% return on investment over 90 days.

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

Mid Cap Growth Profund  vs.  Schwab Small Cap Equity

Mid Cap Growth

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Schwab Small Cap

Risk-Adjusted Performance

OK

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

Pair Trading with Mid Cap and Schwab Small

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

The idea behind Mid Cap Growth Profund and Schwab Small Cap 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.