Correlation Between IShares Treasury and Schwab Intermediate

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

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

Diversification Opportunities for IShares Treasury and Schwab Intermediate

0.99

Correlation Coefficient

IShares Treasury  Schwab Intermediate

No risk reduction

The 3 months correlation between IShares and Schwab is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Treasury Bond and Schwab Intermediate Term Treas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Intermediate and IShares 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 iShares Treasury Bond are associated (or correlated) with Schwab Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Intermediate has no effect on the direction of IShares Treasury i.e., IShares Treasury and Schwab Intermediate go up and down completely randomly.

Pair Corralation between IShares Treasury and Schwab Intermediate

Given the investment horizon of 90 days iShares Treasury Bond is expected to under-perform the Schwab Intermediate. In addition to that, IShares Treasury is 1.09 times more volatile than Schwab Intermediate Term Treasury. It trades about -0.04 of its total potential returns per unit of risk. Schwab Intermediate Term Treasury is currently generating about -0.04 per unit of volatility. If you would invest  2,479  in Schwab Intermediate Term Treasury on August 30, 2024 and sell it today you would lose (16.00) from holding Schwab Intermediate Term Treasury or give up 0.65% of portfolio value over 90 days.

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

iShares Treasury Bond  vs.  Schwab Intermediate Term Treas

iShares Treasury Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Treasury Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Treasury is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Schwab Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Intermediate Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Schwab Intermediate is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Treasury and Schwab Intermediate

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

The idea behind iShares Treasury Bond and Schwab Intermediate 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.

Check out your portfolio center.

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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.