Correlation Between Schwab Treasury and State Street

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

Diversification Opportunities for Schwab Treasury and State Street

-0.42

Correlation Coefficient

Schwab Treasury  State Street

Very good diversification

The 3 months correlation between Schwab and State is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Treasury Inflation and State Street Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Equity 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Equity has no effect on the direction of Schwab Treasury i.e., Schwab Treasury and State Street go up and down completely randomly.

Pair Corralation between Schwab Treasury and State Street

Assuming the 90 days horizon Schwab Treasury Inflation is expected to generate 0.27 times more return on investment than State Street. However, Schwab Treasury Inflation is 3.72 times less risky than State Street. It trades about 0.21 of its potential returns per unit of risk. State Street Equity is currently generating about -0.07 per unit of risk. If you would invest  1,005  in Schwab Treasury Inflation on December 27, 2024 and sell it today you would earn a total of  35.00  from holding Schwab Treasury Inflation or generate 3.48% return on investment over 90 days.

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

Schwab Treasury Inflation  vs.  State Street Equity

Schwab Treasury Inflation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Treasury Inflation are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. 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.

State Street Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Street 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 State Street

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

The idea behind Schwab Treasury Inflation and State Street Equity 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.