Correlation Between Intermediate-term and Schwab Tax-free
Can any of the company-specific risk be diversified away by investing in both Intermediate-term and Schwab Tax-free 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 Intermediate-term and Schwab Tax-free into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Schwab Tax Free Bond, you can compare the effects of market volatilities on Intermediate-term and Schwab Tax-free 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 Intermediate-term with a short position of Schwab Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Schwab Tax-free.
Diversification Opportunities for Intermediate-term and Schwab Tax-free
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Intermediate-term and Schwab is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Schwab Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Tax Free and Intermediate-term 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 Intermediate Term Tax Free Bond are associated (or correlated) with Schwab Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Tax Free has no effect on the direction of Intermediate-term i.e., Intermediate-term and Schwab Tax-free go up and down completely randomly.
Pair Corralation between Intermediate-term and Schwab Tax-free
Assuming the 90 days horizon Intermediate-term is expected to generate 1.11 times less return on investment than Schwab Tax-free. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 1.03 times less risky than Schwab Tax-free. It trades about 0.07 of its potential returns per unit of risk. Schwab Tax Free Bond is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,026 in Schwab Tax Free Bond on August 29, 2024 and sell it today you would earn a total of 79.00 from holding Schwab Tax Free Bond or generate 7.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Term Tax Free Bon vs. Schwab Tax Free Bond
Performance |
| Timeline |
| Intermediate Term Tax |
| Schwab Tax Free |
Intermediate-term and Schwab Tax-free Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate-term and Schwab Tax-free
The main advantage of trading using opposite Intermediate-term and Schwab Tax-free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate-term position performs unexpectedly, Schwab Tax-free 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 Tax-free will offset losses from the drop in Schwab Tax-free's long position.| Intermediate-term vs. HUMANA INC | Intermediate-term vs. Aquagold International | Intermediate-term vs. Barloworld Ltd ADR | Intermediate-term vs. Morningstar Unconstrained Allocation |
| Schwab Tax-free vs. California High Yield Municipal | Schwab Tax-free vs. Siit High Yield | Schwab Tax-free vs. Morningstar Aggressive Growth | Schwab Tax-free vs. Metropolitan West High |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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