Correlation Between IShares Core and Schwab Short

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

By analyzing existing cross correlation between iShares Core SP and Schwab Short Term Treasury, you can compare the effects of market volatilities on IShares Core and Schwab Short 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 Core with a short position of Schwab Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Schwab Short.

Diversification Opportunities for IShares Core and Schwab Short

0.52

Correlation Coefficient

IShares Core  Schwab Short

Very weak diversification

The 3 months correlation between IShares and Schwab is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Schwab Short Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Short Term and IShares Core 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 Core SP are associated (or correlated) with Schwab Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Short Term has no effect on the direction of IShares Core i.e., IShares Core and Schwab Short go up and down completely randomly.

Pair Corralation between IShares Core and Schwab Short

Considering the 90-day investment horizon iShares Core SP is expected to under-perform the Schwab Short. In addition to that, IShares Core is 8.4 times more volatile than Schwab Short Term Treasury. It trades about -0.06 of its total potential returns per unit of risk. Schwab Short Term Treasury is currently generating about 0.27 per unit of volatility. If you would invest  2,414  in Schwab Short Term Treasury on November 28, 2024 and sell it today you would earn a total of  11.00  from holding Schwab Short Term Treasury or generate 0.46% return on investment over 90 days.

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

iShares Core SP  vs.  Schwab Short Term Treasury

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Schwab Short Term

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Short Term Treasury are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Schwab Short is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and Schwab Short

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

The idea behind iShares Core SP and Schwab Short 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.