Correlation Between IShares IBoxx and Schwab 5

Can any of the company-specific risk be diversified away by investing in both IShares IBoxx and Schwab 5 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 IBoxx and Schwab 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares iBoxx Investment and Schwab 5 10 Year, you can compare the effects of market volatilities on IShares IBoxx and Schwab 5 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 IBoxx with a short position of Schwab 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBoxx and Schwab 5.

Diversification Opportunities for IShares IBoxx and Schwab 5

0.98

Correlation Coefficient

IShares IBoxx  Schwab 5

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBoxx Investment and Schwab 5 10 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab 5 10 and IShares IBoxx 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 iBoxx Investment are associated (or correlated) with Schwab 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab 5 10 has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and Schwab 5 go up and down completely randomly.

Pair Corralation between IShares IBoxx and Schwab 5

Considering the 90-day investment horizon IShares IBoxx is expected to generate 2.1 times less return on investment than Schwab 5. In addition to that, IShares IBoxx is 1.34 times more volatile than Schwab 5 10 Year. It trades about 0.01 of its total potential returns per unit of risk. Schwab 5 10 Year is currently generating about 0.02 per unit of volatility. If you would invest  2,249  in Schwab 5 10 Year on September 2, 2024 and sell it today you would earn a total of  11.00  from holding Schwab 5 10 Year or generate 0.49% return on investment over 90 days.

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

iShares iBoxx Investment  vs.  Schwab 5 10 Year

iShares iBoxx Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBoxx Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares IBoxx is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Schwab 5 10

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab 5 10 Year are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Schwab 5 is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares IBoxx and Schwab 5

The main advantage of trading using opposite IShares IBoxx and Schwab 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares IBoxx position performs unexpectedly, Schwab 5 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 5 will offset losses from the drop in Schwab 5's long position.

The idea behind iShares iBoxx Investment and Schwab 5 10 Year 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.