Correlation Between Nasdaq 100 and Schwab Treasury

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Schwab Treasury 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 Nasdaq 100 and Schwab Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 Index Fund and Schwab Treasury Inflation, you can compare the effects of market volatilities on Nasdaq 100 and Schwab Treasury 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 Nasdaq 100 with a short position of Schwab Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Schwab Treasury.

Diversification Opportunities for Nasdaq 100 and Schwab Treasury

-0.55

Correlation Coefficient

Nasdaq 100  Schwab Treasury

Excellent diversification

The 3 months correlation between Nasdaq and Schwab is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund and Schwab Treasury Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Treasury Inflation and Nasdaq 100 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 Nasdaq 100 Index Fund are associated (or correlated) with Schwab Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Treasury Inflation has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Schwab Treasury go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Schwab Treasury

Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to generate 3.95 times more return on investment than Schwab Treasury. However, Nasdaq 100 is 3.95 times more volatile than Schwab Treasury Inflation. It trades about 0.08 of its potential returns per unit of risk. Schwab Treasury Inflation is currently generating about 0.03 per unit of risk. If you would invest  4,222  in Nasdaq 100 Index Fund on September 20, 2024 and sell it today you would earn a total of  997.00  from holding Nasdaq 100 Index Fund or generate 23.61% return on investment over 90 days.

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

Nasdaq 100 Index Fund  vs.  Schwab Treasury Inflation

Nasdaq 100 Index

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Index Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nasdaq 100 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Nasdaq 100 and Schwab Treasury

The main advantage of trading using opposite Nasdaq 100 and Schwab Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 position performs unexpectedly, Schwab Treasury 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 Treasury will offset losses from the drop in Schwab Treasury's long position.

The idea behind Nasdaq 100 Index Fund and Schwab Treasury Inflation 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.