Correlation Between IShares TIPS and Schwab Long

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

By analyzing existing cross correlation between iShares TIPS Bond and Schwab Long Term Treasury, you can compare the effects of market volatilities on IShares TIPS and Schwab Long 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 IShares TIPS with a short position of Schwab Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares TIPS and Schwab Long.

Diversification Opportunities for IShares TIPS and Schwab Long

0.54

Correlation Coefficient

IShares TIPS  Schwab Long

Very weak diversification

The 3 months correlation between IShares and Schwab is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares TIPS Bond and Schwab Long Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Long Term and IShares TIPS 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 iShares TIPS Bond are associated (or correlated) with Schwab Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Long Term has no effect on the direction of IShares TIPS i.e., IShares TIPS and Schwab Long go up and down completely randomly.

Pair Corralation between IShares TIPS and Schwab Long

Considering the 90-day investment horizon iShares TIPS Bond is expected to generate 0.35 times more return on investment than Schwab Long. However, iShares TIPS Bond is 2.86 times less risky than Schwab Long. It trades about -0.34 of its potential returns per unit of risk. Schwab Long Term Treasury is currently generating about -0.42 per unit of risk. If you would invest  10,835  in iShares TIPS Bond on October 3, 2024 and sell it today you would lose (180.00) from holding iShares TIPS Bond or give up 1.66% of portfolio value over 90 days.

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

iShares TIPS Bond  vs.  Schwab Long Term Treasury

iShares TIPS Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares TIPS Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, IShares TIPS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Schwab Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Long Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest sluggish performance, the Etf's technical indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with IShares TIPS and Schwab Long

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

The idea behind iShares TIPS Bond and Schwab Long Term Treasury 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.