Correlation Between Schwab Intermediate and SPDR Portfolio

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

Diversification Opportunities for Schwab Intermediate and SPDR Portfolio

0.95

Correlation Coefficient

Schwab Intermediate  SPDR Portfolio

Almost no diversification

The 3 months correlation between Schwab and SPDR is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Intermediate Term Treas and SPDR Portfolio TIPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio TIPS 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio TIPS has no effect on the direction of Schwab Intermediate i.e., Schwab Intermediate and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Schwab Intermediate and SPDR Portfolio

Given the investment horizon of 90 days Schwab Intermediate Term Treasury is expected to generate 0.71 times more return on investment than SPDR Portfolio. However, Schwab Intermediate Term Treasury is 1.42 times less risky than SPDR Portfolio. It trades about -0.09 of its potential returns per unit of risk. SPDR Portfolio TIPS is currently generating about -0.16 per unit of risk. If you would invest  2,439  in Schwab Intermediate Term Treasury on September 20, 2024 and sell it today you would lose (12.00) from holding Schwab Intermediate Term Treasury or give up 0.49% of portfolio value 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.  SPDR Portfolio TIPS

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.

SPDR Portfolio TIPS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio TIPS has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Schwab Intermediate and SPDR Portfolio

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

The idea behind Schwab Intermediate Term Treasury and SPDR Portfolio TIPS 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.