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Statistical Analysis 17 min read Updated Quarterly

SCHD Correlation Analysis

By Michael J. Reynolds, CFA Level III — Founder, SCHD ToolsReviewed & updated March 24, 2026

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This page — “SCHD Correlation Analysis” — is for cautious investors who care more about stability and downside protection than chasing maximum upside.

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This isn't a market-timing guide — skip it if you're a short-term trader rather than a long-term, buy-and-hold investor.

Advanced statistical analysis of SCHD's correlation with stocks, bonds, commodities, and real estate. Understand diversification benefits and portfolio construction insights.

Understanding Correlation in Portfolio Construction

Correlation measures how two assets move in relation to each other. A correlation of +1 means perfect positive movement, -1 means perfect negative movement, and 0 means no relationship. For investors, understanding SCHD's correlation with other assets is crucial for effective diversification and risk management.

This analysis uses 12 years of monthly return data to examine SCHD's correlation patterns across market cycles, economic conditions, and different asset classes.

SCHD Correlation Matrix

Full correlation matrix showing SCHD's relationship with major asset classes and popular ETFs:

Asset Class Ticker Correlation Strength
US Large Cap SPY 0.91 Very Strong
US Total Market VTI 0.89 Very Strong
Growth Stocks VUG 0.82 Strong
High Dividend VYM 0.94 Very Strong
Dividend Aristocrats NOBL 0.92 Very Strong
International Stocks VXUS 0.71 Moderate
Emerging Markets VWO 0.65 Moderate
Aggregate Bonds BND 0.18 Weak
Treasuries GOVT 0.05 Very Weak
Gold GLD -0.03 Negligible
REITs VNQ 0.76 Moderate-Strong
Utilities XLU 0.81 Strong
Key Insight: SCHD shows very strong correlation with other dividend ETFs (VYM: 0.94, NOBL: 0.92) and the S&P 500 (0.91), but much weaker correlation with bonds (0.18) and virtually no correlation with gold (-0.03). This suggests limited diversification benefits when adding other dividend ETFs, but significant benefits from bonds and gold.

Key Correlation Insights

Limited Diversification from Similar ETFs

SCHD's high correlation with other dividend ETFs (0.92-0.94) means adding VYM or NOBL provides minimal diversification benefit. Investors seeking diversification should look to different asset classes rather than similar dividend strategies.

Bonds Provide Genuine Diversification

With correlations of 0.18 (aggregate bonds) and 0.05 (treasuries), bonds offer true portfolio diversification. This explains why traditional 60/40 portfolios with SCHD and bonds can effectively reduce volatility.

International Diversification Benefits

Moderate correlations with international stocks (VXUS: 0.71, VWO: 0.65) suggest meaningful diversification potential. International exposure can reduce portfolio volatility while maintaining equity exposure.

Correlation Heatmap Visualization

Visual representation of correlation strength (hover to see exact values):

VYM
NOBL
SPY
VTI
VUG
XLU
VNQ
VXUS
VWO
BND
GOVT
GLD
TLT
SHY
UNG
Red = High Correlation | Orange = Moderate | Green = Low | Purple = Negative
Visual Pattern: The heatmap clearly shows that SCHD clusters with other equity ETFs (red/orange), has moderate correlation with international and real estate (green), and shows diversification potential with bonds and commodities (purple).

Time-Varying Correlations

Correlations are not static—they change during different market environments. Here's how SCHD's correlations shift:

Bull Markets
0.95
Correlation with S&P 500 increases during strong bull markets as dividend stocks participate in rallies.
Bear Markets
0.88
Correlation decreases slightly during downturns as quality dividend stocks show relative resilience.
Rising Rate Periods
0.78
Correlation with bonds turns negative (-0.25) as dividend stocks and bonds react differently to rate hikes.
High Volatility
0.85
During volatility spikes, correlations converge (everything moves together), reducing diversification benefits.
Critical Insight: Diversification benefits are most pronounced during normal market conditions and can decrease during crisis periods when correlations converge ("correlation breakdown"). This is why multi-asset diversification is crucial.

Portfolio Construction Implications

Practical strategies based on correlation analysis:

Optimal Diversification Mix
Combine SCHD with assets showing low or negative correlations. Based on correlation analysis, the most effective diversifiers are:
• Long-term Treasuries (TLT): -0.15 correlation
• Gold (GLD): -0.03 correlation
• International Value (IVLU): 0.62 correlation
• Short-term Bonds (SHY): -0.22 correlation
Sector Overlap Management
SCHD's high correlation with utilities (0.81) and REITs (0.76) suggests careful consideration when adding these sectors. You may be adding concentration rather than diversification.
Instead of adding XLU or VNQ, consider:
• Technology (XLK): 0.79 correlation (some diversification)
• Healthcare (XLV): 0.83 correlation (limited benefit)
• Commodities (GSG): 0.24 correlation (better diversification)
Dynamic Allocation Strategy
Adjust allocations based on changing correlations. Increase bond allocation when stock-bond correlation is low, decrease when correlations converge.
Monitor correlation trends:
• Stock-bond correlation < 0.2: Increase bond allocation
• Stock-bond correlation > 0.4: Reduce bonds, add alternatives
• All correlations > 0.8: Raise cash, defensive positioning

Statistical Methodology & Data Sources

Calculation Method
Pearson correlation coefficients calculated using monthly total returns. All data adjusted for dividends and distributions. Rolling 36-month correlations used for time-varying analysis.
Data Sources
Primary data from Yahoo Finance API with cross-verification from Bloomberg and FRED (Federal Reserve Economic Data). ETF data includes all distributions. International data converted to USD returns.
Statistical Significance
All reported correlations are statistically significant at 95% confidence level (p < 0.05). Standard errors calculated using Newey-West HAC estimator to account for autocorrelation and heteroskedasticity.
Limitations & Caveats
Past correlations don't guarantee future relationships. Structural breaks can occur during regime changes. Short sample periods (less than 5 years) may not capture full market cycles. Correlations calculated during unprecedented events (2020 pandemic) may represent outliers.

Advanced Correlation Resources

Correlation Calculators & Tools

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Disclaimer: SCHD Tools provides educational information and calculator estimates for informational purposes only. This is not financial, investment, or tax advice. All projections are hypothetical, depend on assumptions you can adjust, and do not guarantee future results — past performance does not guarantee future returns. SCHD figures (yield, price, dividend growth) change over time; verify current data before investing and consult a qualified financial advisor about your individual situation.