Correlation Between Schwab 5 and Schwab Intermediate

Can any of the company-specific risk be diversified away by investing in both Schwab 5 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 Schwab 5 and Schwab Intermediate 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 Intermediate Term Treasury, you can compare the effects of market volatilities on Schwab 5 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 Schwab 5 with a short position of Schwab Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab 5 and Schwab Intermediate.

Diversification Opportunities for Schwab 5 and Schwab Intermediate

0.96

Correlation Coefficient

Schwab 5  Schwab Intermediate

Almost no diversification

The 3 months correlation between Schwab and Schwab is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Schwab 5 10 Year 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 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 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 Schwab 5 i.e., Schwab 5 and Schwab Intermediate go up and down completely randomly.

Pair Corralation between Schwab 5 and Schwab Intermediate

Given the investment horizon of 90 days Schwab 5 10 Year is expected to under-perform the Schwab Intermediate. In addition to that, Schwab 5 is 1.53 times more volatile than Schwab Intermediate Term Treasury. It trades about -0.34 of its total potential returns per unit of risk. Schwab Intermediate Term Treasury is currently generating about -0.34 per unit of volatility. If you would invest  2,459  in Schwab Intermediate Term Treasury on October 8, 2024 and sell it today you would lose (33.00) from holding Schwab Intermediate Term Treasury or give up 1.34% of portfolio value 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 Intermediate Term Treas

Schwab 5 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab 5 10 Year has generated negative risk-adjusted returns adding no value to investors with long positions. 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 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 Schwab 5 and Schwab Intermediate

The main advantage of trading using opposite Schwab 5 and Schwab Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab 5 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 Schwab 5 10 Year 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.