Correlation Between Schwab International and Schwab Aggregate

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Can any of the company-specific risk be diversified away by investing in both Schwab International and Schwab Aggregate 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 International and Schwab Aggregate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab International Equity and Schwab Aggregate Bond, you can compare the effects of market volatilities on Schwab International and Schwab Aggregate 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 International with a short position of Schwab Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and Schwab Aggregate.

Diversification Opportunities for Schwab International and Schwab Aggregate

SchwabSchwabDiversified AwaySchwabSchwabDiversified Away100%
0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Schwab and Schwab is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Equity and Schwab Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Aggregate Bond and Schwab International 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 International Equity are associated (or correlated) with Schwab Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Aggregate Bond has no effect on the direction of Schwab International i.e., Schwab International and Schwab Aggregate go up and down completely randomly.

Pair Corralation between Schwab International and Schwab Aggregate

Given the investment horizon of 90 days Schwab International Equity is expected to generate 2.51 times more return on investment than Schwab Aggregate. However, Schwab International is 2.51 times more volatile than Schwab Aggregate Bond. It trades about 0.18 of its potential returns per unit of risk. Schwab Aggregate Bond is currently generating about 0.23 per unit of risk. If you would invest  1,935  in Schwab International Equity on November 25, 2024 and sell it today you would earn a total of  51.00  from holding Schwab International Equity or generate 2.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Schwab International Equity  vs.  Schwab Aggregate Bond

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -20246
JavaScript chart by amCharts 3.21.15SCHF SCHZ
       Timeline  
Schwab International 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb18.51919.520
Schwab Aggregate Bond 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Aggregate Bond are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Schwab Aggregate 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 3.21.15DecJanFebJanFeb22.422.522.622.722.822.92323.1

Schwab International and Schwab Aggregate Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.21-1.63-1.05-0.470.06960.641.221.82.382.96 1234
JavaScript chart by amCharts 3.21.15SCHF SCHZ
       Returns  

Pair Trading with Schwab International and Schwab Aggregate

The main advantage of trading using opposite Schwab International and Schwab Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab International position performs unexpectedly, Schwab Aggregate 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 Aggregate will offset losses from the drop in Schwab Aggregate's long position.
The idea behind Schwab International Equity and Schwab Aggregate Bond 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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