Correlation Between Vanguard Inflation and Schwab Treasury
Can any of the company-specific risk be diversified away by investing in both Vanguard Inflation and Schwab Treasury 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 Vanguard Inflation and Schwab Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Inflation Protected Securities and Schwab Treasury Inflation, you can compare the effects of market volatilities on Vanguard Inflation and Schwab Treasury 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 Vanguard Inflation with a short position of Schwab Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Inflation and Schwab Treasury.
Diversification Opportunities for Vanguard Inflation and Schwab Treasury
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Schwab is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Inflation Protected S and Schwab Treasury Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Treasury Inflation and Vanguard Inflation 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 Vanguard Inflation Protected Securities are associated (or correlated) with Schwab Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Treasury Inflation has no effect on the direction of Vanguard Inflation i.e., Vanguard Inflation and Schwab Treasury go up and down completely randomly.
Pair Corralation between Vanguard Inflation and Schwab Treasury
Assuming the 90 days horizon Vanguard Inflation is expected to generate 1.02 times less return on investment than Schwab Treasury. In addition to that, Vanguard Inflation is 1.12 times more volatile than Schwab Treasury Inflation. It trades about 0.22 of its total potential returns per unit of risk. Schwab Treasury Inflation is currently generating about 0.25 per unit of volatility. If you would invest 1,021 in Schwab Treasury Inflation on September 13, 2024 and sell it today you would earn a total of 10.00 from holding Schwab Treasury Inflation or generate 0.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Inflation Protected S vs. Schwab Treasury Inflation
Performance |
| Timeline |
| Vanguard Inflation |
| Schwab Treasury Inflation |
Vanguard Inflation and Schwab Treasury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Inflation and Schwab Treasury
The main advantage of trading using opposite Vanguard Inflation and Schwab Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Inflation position performs unexpectedly, Schwab Treasury 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 Treasury will offset losses from the drop in Schwab Treasury's long position.The idea behind Vanguard Inflation Protected Securities and Schwab Treasury 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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