Correlation Between Schwab TIPS and Vanguard Mid

Can any of the company-specific risk be diversified away by investing in both Schwab TIPS and Vanguard Mid 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 Mid 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 Mid Cap Index, you can compare the effects of market volatilities on Schwab TIPS and Vanguard Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab TIPS and Vanguard Mid.

Diversification Opportunities for Schwab TIPS and Vanguard Mid

-0.06

Correlation Coefficient

Schwab TIPS  Vanguard Mid

Good diversification

The 3 months correlation between Schwab and Vanguard is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Schwab TIPS ETF and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of Schwab TIPS i.e., Schwab TIPS and Vanguard Mid go up and down completely randomly.

Pair Corralation between Schwab TIPS and Vanguard Mid

Given the investment horizon of 90 days Schwab TIPS ETF is expected to under-perform the Vanguard Mid. But the etf apears to be less risky and, when comparing its historical volatility, Schwab TIPS ETF is 4.94 times less risky than Vanguard Mid. The etf trades about -0.03 of its potential returns per unit of risk. The Vanguard Mid Cap Index is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  26,566  in Vanguard Mid Cap Index on March 1, 2025 and sell it today you would earn a total of  406.00  from holding Vanguard Mid Cap Index or generate 1.53% return on investment over 90 days.

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

Schwab TIPS ETF  vs.  Vanguard Mid Cap Index

Schwab TIPS ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab TIPS ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Schwab TIPS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard Mid Cap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Schwab TIPS and Vanguard Mid

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

The idea behind Schwab TIPS ETF and Vanguard Mid Cap Index 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.