Correlation Between IShares Trust and Schwab Intermediate

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

Diversification Opportunities for IShares Trust and Schwab Intermediate

0.05

Correlation Coefficient

IShares Trust  Schwab Intermediate

Significant diversification

The 3 months correlation between IShares and Schwab is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Schwab Intermediate Term Treas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Intermediate 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 Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Intermediate has no effect on the direction of IShares Trust i.e., IShares Trust and Schwab Intermediate go up and down completely randomly.

Pair Corralation between IShares Trust and Schwab Intermediate

Given the investment horizon of 90 days iShares Trust is expected to under-perform the Schwab Intermediate. In addition to that, IShares Trust is 2.5 times more volatile than Schwab Intermediate Term Treasury. It trades about 0.0 of its total potential returns per unit of risk. Schwab Intermediate Term Treasury is currently generating about 0.16 per unit of volatility. If you would invest  2,415  in Schwab Intermediate Term Treasury on December 29, 2024 and sell it today you would earn a total of  66.00  from holding Schwab Intermediate Term Treasury or generate 2.73% return on investment over 90 days.

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

iShares Trust  vs.  Schwab Intermediate Term Treas

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Schwab Intermediate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Intermediate Term Treasury are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Schwab Intermediate is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Trust and Schwab Intermediate

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

The idea behind iShares Trust and Schwab Intermediate Term Treasury 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.