Correlation Between IShares Core and Schwab Intermediate

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

Diversification Opportunities for IShares Core and Schwab Intermediate

-0.55

Correlation Coefficient

IShares Core  Schwab Intermediate

Excellent diversification

The 3 months correlation between IShares and Schwab is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP 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 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 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 Core i.e., IShares Core and Schwab Intermediate go up and down completely randomly.

Pair Corralation between IShares Core and Schwab Intermediate

Considering the 90-day investment horizon iShares Core SP is expected to generate 2.4 times more return on investment than Schwab Intermediate. However, IShares Core is 2.4 times more volatile than Schwab Intermediate Term Treasury. It trades about 0.17 of its potential returns per unit of risk. Schwab Intermediate Term Treasury is currently generating about 0.09 per unit of risk. If you would invest  40,535  in iShares Core SP on September 21, 2024 and sell it today you would earn a total of  18,798  from holding iShares Core SP or generate 46.37% return on investment over 90 days.

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

iShares Core SP  vs.  Schwab Intermediate Term Treas

iShares Core SP

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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 Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Intermediate Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Core and Schwab Intermediate

The main advantage of trading using opposite IShares Core and Schwab Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core SP 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.