Correlation Between IShares National and Schwab Intermediate

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

Diversification Opportunities for IShares National and Schwab Intermediate

0.52

Correlation Coefficient

IShares National  Schwab Intermediate

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 National Muni 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 National 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 National Muni 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 National i.e., IShares National and Schwab Intermediate go up and down completely randomly.

Pair Corralation between IShares National and Schwab Intermediate

Considering the 90-day investment horizon iShares National Muni is expected to generate 1.24 times more return on investment than Schwab Intermediate. However, IShares National is 1.24 times more volatile than Schwab Intermediate Term Treasury. It trades about 0.03 of its potential returns per unit of risk. Schwab Intermediate Term Treasury is currently generating about -0.07 per unit of risk. If you would invest  10,584  in iShares National Muni on September 23, 2024 and sell it today you would earn a total of  36.00  from holding iShares National Muni or generate 0.34% return on investment over 90 days.

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

iShares National Muni  vs.  Schwab Intermediate Term Treas

iShares National Muni

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares National Muni has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 National and Schwab Intermediate

The main advantage of trading using opposite IShares National and Schwab Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares National 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 National Muni 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.