Correlation Between Schwab Treasury and Vanguard Small

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

Diversification Opportunities for Schwab Treasury and Vanguard Small

-0.57

Correlation Coefficient

Schwab Treasury  Vanguard Small

Excellent diversification

The 3 months correlation between Schwab and Vanguard is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Treasury Inflation and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Schwab Treasury i.e., Schwab Treasury and Vanguard Small go up and down completely randomly.

Pair Corralation between Schwab Treasury and Vanguard Small

Assuming the 90 days horizon Schwab Treasury Inflation is expected to under-perform the Vanguard Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Schwab Treasury Inflation is 4.01 times less risky than Vanguard Small. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Vanguard Small Cap Growth is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7,330  in Vanguard Small Cap Growth on September 14, 2024 and sell it today you would earn a total of  994.00  from holding Vanguard Small Cap Growth or generate 13.56% 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.  Vanguard Small Cap Growth

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.

Vanguard Small Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Schwab Treasury and Vanguard Small

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

The idea behind Schwab Treasury Inflation and Vanguard Small Cap Growth 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.