Correlation Between Schwab REIT and Vanguard Primecap

Can any of the company-specific risk be diversified away by investing in both Schwab REIT and Vanguard Primecap 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 Vanguard Primecap 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 Vanguard Primecap Fund, you can compare the effects of market volatilities on Schwab REIT and Vanguard Primecap 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 Vanguard Primecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab REIT and Vanguard Primecap.

Diversification Opportunities for Schwab REIT and Vanguard Primecap

0.65

Correlation Coefficient

Schwab REIT  Vanguard Primecap

Poor diversification

The 3 months correlation between Schwab and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Schwab REIT ETF and Vanguard Primecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Primecap 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 Vanguard Primecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Primecap has no effect on the direction of Schwab REIT i.e., Schwab REIT and Vanguard Primecap go up and down completely randomly.

Pair Corralation between Schwab REIT and Vanguard Primecap

Given the investment horizon of 90 days Schwab REIT is expected to generate 18.68 times less return on investment than Vanguard Primecap. In addition to that, Schwab REIT is 1.02 times more volatile than Vanguard Primecap Fund. It trades about 0.01 of its total potential returns per unit of risk. Vanguard Primecap Fund is currently generating about 0.2 per unit of volatility. If you would invest  15,545  in Vanguard Primecap Fund on May 7, 2025 and sell it today you would earn a total of  1,745  from holding Vanguard Primecap Fund or generate 11.23% return on investment over 90 days.

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

Schwab REIT ETF  vs.  Vanguard Primecap Fund

Schwab REIT ETF

Risk-Adjusted Performance

Weakest

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.

Vanguard Primecap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Primecap Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Vanguard Primecap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Schwab REIT and Vanguard Primecap

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

The idea behind Schwab REIT ETF and Vanguard Primecap 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.