Correlation Between Schwab Aggregate and SPDR Portfolio

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

Diversification Opportunities for Schwab Aggregate and SPDR Portfolio

0.94

Correlation Coefficient

Schwab Aggregate  SPDR Portfolio

Almost no diversification

The 3 months correlation between Schwab and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Aggregate Bond 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 Aggregate 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 Aggregate Bond 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 Aggregate i.e., Schwab Aggregate and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Schwab Aggregate and SPDR Portfolio

Given the investment horizon of 90 days Schwab Aggregate Bond is expected to generate 1.02 times more return on investment than SPDR Portfolio. However, Schwab Aggregate is 1.02 times more volatile than SPDR Portfolio TIPS. It trades about 0.05 of its potential returns per unit of risk. SPDR Portfolio TIPS is currently generating about 0.03 per unit of risk. 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 Aggregate Bond  vs.  SPDR Portfolio TIPS

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.

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 Aggregate and SPDR Portfolio

The main advantage of trading using opposite Schwab Aggregate and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Aggregate 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 Aggregate Bond 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.