Correlation Between Schwab Treasury and Small Cap

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

By analyzing existing cross correlation between Schwab Treasury Inflation and Small Cap Value Fund, you can compare the effects of market volatilities on Schwab Treasury and Small Cap 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 Treasury with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Treasury and Small Cap.

Diversification Opportunities for Schwab Treasury and Small Cap

-0.01

Correlation Coefficient

Schwab Treasury  Small Cap

Good diversification

The 3 months correlation between Schwab and Small is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Treasury Inflation and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Schwab Treasury 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 Treasury Inflation are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Schwab Treasury i.e., Schwab Treasury and Small Cap go up and down completely randomly.

Pair Corralation between Schwab Treasury and Small Cap

Assuming the 90 days horizon Schwab Treasury Inflation is expected to generate 0.18 times more return on investment than Small Cap. However, Schwab Treasury Inflation is 5.5 times less risky than Small Cap. It trades about -0.22 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about -0.38 per unit of risk. If you would invest  1,021  in Schwab Treasury Inflation on September 22, 2024 and sell it today you would lose (15.00) from holding Schwab Treasury Inflation or give up 1.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Schwab Treasury Inflation  vs.  Small Cap Value Fund

Schwab Treasury Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Schwab Treasury and Small Cap

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

The idea behind Schwab Treasury Inflation and Small Cap Value Fund 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.