Correlation Between SPDR Portfolio and Schwab TIPS

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

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

Diversification Opportunities for SPDR Portfolio and Schwab TIPS

0.95

Correlation Coefficient

SPDR Portfolio  Schwab TIPS

Almost no diversification

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

Pair Corralation between SPDR Portfolio and Schwab TIPS

Given the investment horizon of 90 days SPDR Portfolio TIPS is expected to under-perform the Schwab TIPS. In addition to that, SPDR Portfolio is 1.36 times more volatile than Schwab TIPS ETF. It trades about -0.16 of its total potential returns per unit of risk. Schwab TIPS ETF is currently generating about -0.2 per unit of volatility. If you would invest  2,614  in Schwab TIPS ETF on September 20, 2024 and sell it today you would lose (30.00) from holding Schwab TIPS ETF or give up 1.15% of portfolio value over 90 days.

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

SPDR Portfolio TIPS  vs.  Schwab TIPS ETF

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.

Schwab TIPS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab TIPS ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Schwab TIPS 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 SPDR Portfolio and Schwab TIPS

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

The idea behind SPDR Portfolio TIPS and Schwab TIPS 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.