Correlation Between IShares Short and Schwab Intermediate

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

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

Diversification Opportunities for IShares Short and Schwab Intermediate

0.93

Correlation Coefficient

IShares Short  Schwab Intermediate

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Short Treasury 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 IShares Short 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 iShares Short Treasury 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 IShares Short i.e., IShares Short and Schwab Intermediate go up and down completely randomly.

Pair Corralation between IShares Short and Schwab Intermediate

Considering the 90-day investment horizon IShares Short is expected to generate 2.77 times less return on investment than Schwab Intermediate. But when comparing it to its historical volatility, iShares Short Treasury is 21.31 times less risky than Schwab Intermediate. It trades about 1.26 of its potential returns per unit of risk. Schwab Intermediate Term Treasury is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,415  in Schwab Intermediate Term Treasury on December 29, 2024 and sell it today you would earn a total of  66.00  from holding Schwab Intermediate Term Treasury or generate 2.73% return on investment over 90 days.

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

iShares Short Treasury  vs.  Schwab Intermediate Term Treas

iShares Short Treasury

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Treasury are ranked lower than 96 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical indicators, IShares Short is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with IShares Short and Schwab Intermediate

The main advantage of trading using opposite IShares Short and Schwab Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Short 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 iShares Short Treasury 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.