Correlation Between Schwab Intermediate and IShares Edge

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

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

Diversification Opportunities for Schwab Intermediate and IShares Edge

0.96

Correlation Coefficient

Schwab Intermediate  IShares Edge

Almost no diversification

The 3 months correlation between Schwab and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Intermediate Term Treas and iShares Edge Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge Investment and Schwab Intermediate 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 Intermediate Term Treasury are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge Investment has no effect on the direction of Schwab Intermediate i.e., Schwab Intermediate and IShares Edge go up and down completely randomly.

Pair Corralation between Schwab Intermediate and IShares Edge

Given the investment horizon of 90 days Schwab Intermediate is expected to generate 3.83 times less return on investment than IShares Edge. But when comparing it to its historical volatility, Schwab Intermediate Term Treasury is 1.38 times less risky than IShares Edge. It trades about 0.03 of its potential returns per unit of risk. iShares Edge Investment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,510  in iShares Edge Investment on August 30, 2024 and sell it today you would earn a total of  29.00  from holding iShares Edge Investment or generate 0.64% return on investment over 90 days.

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

Schwab Intermediate Term Treas  vs.  iShares Edge Investment

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.

iShares Edge Investment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge Investment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, IShares Edge is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Intermediate and IShares Edge

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

The idea behind Schwab Intermediate Term Treasury and iShares Edge Investment 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.