Correlation Between Schwab Treasury and Tax Exempt

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

Diversification Opportunities for Schwab Treasury and Tax Exempt

0.77

Correlation Coefficient

Schwab Treasury  Tax Exempt

Poor diversification

The 3 months correlation between Schwab and Tax is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Treasury Inflation and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond 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 Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Schwab Treasury i.e., Schwab Treasury and Tax Exempt go up and down completely randomly.

Pair Corralation between Schwab Treasury and Tax Exempt

Assuming the 90 days horizon Schwab Treasury Inflation is expected to under-perform the Tax Exempt. In addition to that, Schwab Treasury is 1.25 times more volatile than Tax Exempt Bond Fund. It trades about -0.36 of its total potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about -0.36 per unit of volatility. If you would invest  2,217  in Tax Exempt Bond Fund on September 26, 2024 and sell it today you would lose (38.00) from holding Tax Exempt Bond Fund or give up 1.71% of portfolio value over 90 days.

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

Schwab Treasury Inflation  vs.  Tax Exempt Bond 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.

Tax Exempt Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Schwab Treasury and Tax Exempt

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

The idea behind Schwab Treasury Inflation and Tax Exempt Bond 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.