Correlation Between Schwab Treasury and Vanguard Total

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

Diversification Opportunities for Schwab Treasury and Vanguard Total

-0.59

Correlation Coefficient

Schwab Treasury  Vanguard Total

Excellent diversification

The 3 months correlation between Schwab and Vanguard is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Treasury Inflation and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock 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 Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of Schwab Treasury i.e., Schwab Treasury and Vanguard Total go up and down completely randomly.

Pair Corralation between Schwab Treasury and Vanguard Total

Assuming the 90 days horizon Schwab Treasury is expected to generate 7.2 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, Schwab Treasury Inflation is 2.3 times less risky than Vanguard Total. It trades about 0.04 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  16,957  in Vanguard Total Stock on September 17, 2024 and sell it today you would earn a total of  10,430  from holding Vanguard Total Stock or generate 61.51% 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 Total Stock

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 Total Stock

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schwab Treasury and Vanguard Total

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

The idea behind Schwab Treasury Inflation and Vanguard Total Stock 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.