Correlation Between Schwab 5 and Schwab Long

Can any of the company-specific risk be diversified away by investing in both Schwab 5 and Schwab Long 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 5 and Schwab Long into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Schwab 5 10 Year and Schwab Long Term Treasury, you can compare the effects of market volatilities on Schwab 5 and Schwab Long 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 5 with a short position of Schwab Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab 5 and Schwab Long.

Diversification Opportunities for Schwab 5 and Schwab Long

0.97

Correlation Coefficient

Schwab 5  Schwab Long

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Schwab 5 10 Year and Schwab Long Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Long Term and Schwab 5 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 5 10 Year are associated (or correlated) with Schwab Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Long Term has no effect on the direction of Schwab 5 i.e., Schwab 5 and Schwab Long go up and down completely randomly.

Pair Corralation between Schwab 5 and Schwab Long

Given the investment horizon of 90 days Schwab 5 is expected to generate 1.63 times less return on investment than Schwab Long. But when comparing it to its historical volatility, Schwab 5 10 Year is 2.33 times less risky than Schwab Long. It trades about 0.12 of its potential returns per unit of risk. Schwab Long Term Treasury is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,137  in Schwab Long Term Treasury on December 28, 2024 and sell it today you would earn a total of  114.00  from holding Schwab Long Term Treasury or generate 3.63% return on investment over 90 days.

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

Schwab 5 10 Year  vs.  Schwab Long Term Treasury

Schwab 5 10

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab 5 10 Year are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Schwab 5 is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Schwab Long Term

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Long Term Treasury are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Schwab Long is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Schwab 5 and Schwab Long

The main advantage of trading using opposite Schwab 5 and Schwab Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab 5 position performs unexpectedly, Schwab Long 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 Long will offset losses from the drop in Schwab Long's long position.

The idea behind Schwab 5 10 Year and Schwab Long 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.