Correlation Between Schwab Intermediate and Schwab Aggregate

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

Diversification Opportunities for Schwab Intermediate and Schwab Aggregate

0.99

Correlation Coefficient

Schwab Intermediate  Schwab Aggregate

No risk reduction

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

Pair Corralation between Schwab Intermediate and Schwab Aggregate

Given the investment horizon of 90 days Schwab Intermediate is expected to generate 1.41 times less return on investment than Schwab Aggregate. But when comparing it to its historical volatility, Schwab Intermediate Term Treasury is 1.13 times less risky than Schwab Aggregate. It trades about 0.04 of its potential returns per unit of risk. Schwab Aggregate Bond is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,047  in Schwab Aggregate Bond on September 20, 2024 and sell it today you would earn a total of  227.00  from holding Schwab Aggregate Bond or generate 11.09% 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.  Schwab Aggregate Bond

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.

Schwab Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Schwab Aggregate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Intermediate and Schwab Aggregate

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

The idea behind Schwab Intermediate Term Treasury and Schwab Aggregate Bond 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.