Correlation Between IShares Gold and Schwab Aggregate

Can any of the company-specific risk be diversified away by investing in both IShares Gold and Schwab Aggregate 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 IShares Gold and Schwab Aggregate into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Gold Strategy and Schwab Aggregate Bond, you can compare the effects of market volatilities on IShares Gold and Schwab Aggregate 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 IShares Gold with a short position of Schwab Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Gold and Schwab Aggregate.

Diversification Opportunities for IShares Gold and Schwab Aggregate

-0.58

Correlation Coefficient

IShares Gold  Schwab Aggregate

Excellent diversification

The 3 months correlation between IShares and Schwab is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares Gold Strategy and Schwab Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Aggregate Bond and IShares Gold 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 iShares Gold Strategy are associated (or correlated) with Schwab Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Aggregate Bond has no effect on the direction of IShares Gold i.e., IShares Gold and Schwab Aggregate go up and down completely randomly.

Pair Corralation between IShares Gold and Schwab Aggregate

Given the investment horizon of 90 days iShares Gold Strategy is expected to under-perform the Schwab Aggregate. In addition to that, IShares Gold is 2.41 times more volatile than Schwab Aggregate Bond. It trades about -0.03 of its total potential returns per unit of risk. Schwab Aggregate Bond is currently generating about 0.0 per unit of volatility. If you would invest  4,523  in Schwab Aggregate Bond on February 7, 2024 and sell it today you would lose (2.00) from holding Schwab Aggregate Bond or give up 0.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

iShares Gold Strategy  vs.  Schwab Aggregate Bond

iShares Gold Strategy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Gold Strategy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Schwab Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Schwab Aggregate is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Gold and Schwab Aggregate

The main advantage of trading using opposite IShares Gold and Schwab Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Gold position performs unexpectedly, Schwab Aggregate 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 Aggregate will offset losses from the drop in Schwab Aggregate's long position.

The idea behind iShares Gold Strategy and Schwab Aggregate Bond 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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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.