Correlation Between Schwab TIPS and SPDR Portfolio
Can any of the company-specific risk be diversified away by investing in both Schwab TIPS and SPDR Portfolio 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 TIPS and SPDR Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab TIPS ETF and SPDR Portfolio Aggregate, you can compare the effects of market volatilities on Schwab TIPS and SPDR Portfolio 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 TIPS with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab TIPS and SPDR Portfolio.
Diversification Opportunities for Schwab TIPS and SPDR Portfolio
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Schwab and SPDR is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Schwab TIPS ETF and SPDR Portfolio Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio Aggregate and Schwab TIPS 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 TIPS ETF are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio Aggregate has no effect on the direction of Schwab TIPS i.e., Schwab TIPS and SPDR Portfolio go up and down completely randomly.
Pair Corralation between Schwab TIPS and SPDR Portfolio
Given the investment horizon of 90 days Schwab TIPS ETF is expected to generate 0.88 times more return on investment than SPDR Portfolio. However, Schwab TIPS ETF is 1.14 times less risky than SPDR Portfolio. It trades about -0.01 of its potential returns per unit of risk. SPDR Portfolio Aggregate is currently generating about -0.02 per unit of risk. If you would invest 2,644 in Schwab TIPS ETF on September 2, 2024 and sell it today you would lose (3.00) from holding Schwab TIPS ETF or give up 0.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab TIPS ETF vs. SPDR Portfolio Aggregate
Performance |
| Timeline |
| Schwab TIPS ETF |
| SPDR Portfolio Aggregate |
Schwab TIPS and SPDR Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab TIPS and SPDR Portfolio
The main advantage of trading using opposite Schwab TIPS and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab TIPS position performs unexpectedly, SPDR Portfolio 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 SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.| Schwab TIPS vs. Schwab Intermediate Term Treasury | Schwab TIPS vs. Schwab Aggregate Bond | Schwab TIPS vs. Schwab International Equity | Schwab TIPS vs. Schwab Emerging Markets |
| SPDR Portfolio vs. SPDR SP World | SPDR Portfolio vs. SPDR Barclays Intermediate | SPDR Portfolio vs. SPDR Portfolio SP | SPDR Portfolio vs. SPDR Portfolio Emerging |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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