Correlation Between Schwab REIT and Limited Duration

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

By analyzing existing cross correlation between Schwab REIT ETF and Limited Duration Fund, you can compare the effects of market volatilities on Schwab REIT and Limited Duration 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 REIT with a short position of Limited Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab REIT and Limited Duration.

Diversification Opportunities for Schwab REIT and Limited Duration

0.43

Correlation Coefficient

Schwab REIT  Limited Duration

Very weak diversification

The 3 months correlation between Schwab and Limited is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Schwab REIT ETF and Limited Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Limited Duration and Schwab REIT 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 REIT ETF are associated (or correlated) with Limited Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Limited Duration has no effect on the direction of Schwab REIT i.e., Schwab REIT and Limited Duration go up and down completely randomly.

Pair Corralation between Schwab REIT and Limited Duration

Given the investment horizon of 90 days Schwab REIT is expected to generate 2.06 times less return on investment than Limited Duration. In addition to that, Schwab REIT is 5.58 times more volatile than Limited Duration Fund. It trades about 0.01 of its total potential returns per unit of risk. Limited Duration Fund is currently generating about 0.11 per unit of volatility. If you would invest  928.00  in Limited Duration Fund on May 7, 2025 and sell it today you would earn a total of  10.00  from holding Limited Duration Fund or generate 1.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Schwab REIT ETF  vs.  Limited Duration Fund

Schwab REIT ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab REIT ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Schwab REIT is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Limited Duration

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Limited Duration Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Limited Duration is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab REIT and Limited Duration

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

The idea behind Schwab REIT ETF and Limited Duration Fund 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.