Correlation Between Schwab Treasury and Western Asset
Can any of the company-specific risk be diversified away by investing in both Schwab Treasury and Western Asset 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 Treasury and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schwab Treasury Inflation and Western Asset Inflation, you can compare the effects of market volatilities on Schwab Treasury and Western Asset 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 Treasury with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Treasury and Western Asset.
Diversification Opportunities for Schwab Treasury and Western Asset
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Schwab and Western is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Treasury Inflation and Western Asset Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Inflation and Schwab Treasury 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 Treasury Inflation are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Inflation has no effect on the direction of Schwab Treasury i.e., Schwab Treasury and Western Asset go up and down completely randomly.
Pair Corralation between Schwab Treasury and Western Asset
Assuming the 90 days horizon Schwab Treasury Inflation is expected to generate 0.87 times more return on investment than Western Asset. However, Schwab Treasury Inflation is 1.15 times less risky than Western Asset. It trades about 0.07 of its potential returns per unit of risk. Western Asset Inflation is currently generating about 0.05 per unit of risk. If you would invest 959.00 in Schwab Treasury Inflation on September 12, 2024 and sell it today you would earn a total of 73.00 from holding Schwab Treasury Inflation or generate 7.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schwab Treasury Inflation vs. Western Asset Inflation
Performance |
| Timeline |
| Schwab Treasury Inflation |
| Western Asset Inflation |
Schwab Treasury and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schwab Treasury and Western Asset
The main advantage of trading using opposite Schwab Treasury and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Treasury position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.The idea behind Schwab Treasury Inflation and Western Asset Inflation 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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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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