Correlation Between Schwab Intermediate and IShares MBS

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

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

Diversification Opportunities for Schwab Intermediate and IShares MBS

0.99

Correlation Coefficient

Schwab Intermediate  IShares MBS

No risk reduction

The 3 months correlation between Schwab and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Intermediate Term Treas and iShares MBS ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MBS ETF and Schwab Intermediate 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 Intermediate Term Treasury are associated (or correlated) with IShares MBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MBS ETF has no effect on the direction of Schwab Intermediate i.e., Schwab Intermediate and IShares MBS go up and down completely randomly.

Pair Corralation between Schwab Intermediate and IShares MBS

Given the investment horizon of 90 days Schwab Intermediate is expected to generate 1.03 times less return on investment than IShares MBS. But when comparing it to its historical volatility, Schwab Intermediate Term Treasury is 1.24 times less risky than IShares MBS. It trades about 0.16 of its potential returns per unit of risk. iShares MBS ETF is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,111  in iShares MBS ETF on December 29, 2024 and sell it today you would earn a total of  255.00  from holding iShares MBS ETF or generate 2.8% return on investment over 90 days.

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

Schwab Intermediate Term Treas  vs.  iShares MBS ETF

Schwab Intermediate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Intermediate Term Treasury are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. 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.

iShares MBS ETF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MBS ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, IShares MBS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Intermediate and IShares MBS

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

The idea behind Schwab Intermediate Term Treasury and iShares MBS ETF 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.