Correlation Between Schwab TIPS and Vanguard Short
Can any of the company-specific risk be diversified away by investing in both Schwab TIPS and Vanguard Short 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 Vanguard Short 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 Vanguard Short Term Treasury, you can compare the effects of market volatilities on Schwab TIPS and Vanguard Short 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 Vanguard Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab TIPS and Vanguard Short.
Diversification Opportunities for Schwab TIPS and Vanguard Short
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Schwab and Vanguard is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Schwab TIPS ETF and Vanguard Short Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Vanguard Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of Schwab TIPS i.e., Schwab TIPS and Vanguard Short go up and down completely randomly.
Pair Corralation between Schwab TIPS and Vanguard Short
Given the investment horizon of 90 days Schwab TIPS ETF is expected to generate 2.62 times more return on investment than Vanguard Short. However, Schwab TIPS is 2.62 times more volatile than Vanguard Short Term Treasury. It trades about 0.07 of its potential returns per unit of risk. Vanguard Short Term Treasury is currently generating about 0.03 per unit of risk. If you would invest 2,623 in Schwab TIPS ETF on August 28, 2024 and sell it today you would earn a total of 9.00 from holding Schwab TIPS ETF or generate 0.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab TIPS ETF vs. Vanguard Short Term Treasury
Performance |
| Timeline |
| Schwab TIPS ETF |
| Vanguard Short Term |
Schwab TIPS and Vanguard Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab TIPS and Vanguard Short
The main advantage of trading using opposite Schwab TIPS and Vanguard Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab TIPS position performs unexpectedly, Vanguard Short 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 Vanguard Short will offset losses from the drop in Vanguard Short'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 |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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