Correlation Between IShares 25 and Schwab Long

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Can any of the company-specific risk be diversified away by investing in both IShares 25 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 25 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 25 Year and Schwab Long Term Treasury, you can compare the effects of market volatilities on IShares 25 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 25 with a short position of Schwab Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 25 and Schwab Long.

Diversification Opportunities for IShares 25 and Schwab Long

ISharesSchwabDiversified AwayISharesSchwabDiversified Away100%
0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares 25 Year 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 25 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 25 Year 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 25 i.e., IShares 25 and Schwab Long go up and down completely randomly.

Pair Corralation between IShares 25 and Schwab Long

Given the investment horizon of 90 days iShares 25 Year is expected to under-perform the Schwab Long. In addition to that, IShares 25 is 1.92 times more volatile than Schwab Long Term Treasury. It trades about -0.07 of its total potential returns per unit of risk. Schwab Long Term Treasury is currently generating about -0.04 per unit of volatility. If you would invest  3,277  in Schwab Long Term Treasury on November 25, 2024 and sell it today you would lose (55.00) from holding Schwab Long Term Treasury or give up 1.68% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

iShares 25 Year  vs.  Schwab Long Term Treasury

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -50510
JavaScript chart by amCharts 3.21.15GOVZ SCHQ
       Timeline  
iShares 25 Year 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days iShares 25 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, IShares 25 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb9.51010.511
Schwab Long Term 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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 relatively invariable technical indicators, Schwab Long is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb30.53131.53232.53333.5

IShares 25 and Schwab Long Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.25-1.71-1.17-0.63-0.09340.390.931.472.012.55 0.20.40.60.8
JavaScript chart by amCharts 3.21.15GOVZ SCHQ
       Returns  

Pair Trading with IShares 25 and Schwab Long

The main advantage of trading using opposite IShares 25 and Schwab Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 25 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 25 Year 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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