Correlation Between Schwab Total and Scout Core

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

By analyzing existing cross correlation between Schwab Total Stock and Scout E Bond, you can compare the effects of market volatilities on Schwab Total and Scout Core 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 Total with a short position of Scout Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Total and Scout Core.

Diversification Opportunities for Schwab Total and Scout Core

0.69

Correlation Coefficient

Schwab Total  Scout Core

Poor diversification

The 3 months correlation between Schwab and Scout is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Total Stock and Scout E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scout E Bond and Schwab Total 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 Total Stock are associated (or correlated) with Scout Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scout E Bond has no effect on the direction of Schwab Total i.e., Schwab Total and Scout Core go up and down completely randomly.

Pair Corralation between Schwab Total and Scout Core

Assuming the 90 days horizon Schwab Total Stock is expected to generate 2.44 times more return on investment than Scout Core. However, Schwab Total is 2.44 times more volatile than Scout E Bond. It trades about 0.21 of its potential returns per unit of risk. Scout E Bond is currently generating about 0.11 per unit of risk. If you would invest  9,509  in Schwab Total Stock on May 5, 2025 and sell it today you would earn a total of  1,024  from holding Schwab Total Stock or generate 10.77% return on investment over 90 days.

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

Schwab Total Stock  vs.  Scout E Bond

Schwab Total Stock

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Total Stock are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Schwab Total may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Scout E Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scout E Bond are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Scout Core 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 Total and Scout Core

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

The idea behind Schwab Total Stock and Scout E Bond 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.