Calculator Settings
Historical annual return of SCHD
Annual volatility/risk of SCHD
Beta relative to the market (S&P 500 = 1.0)
Current 10-year Treasury yield
Annual return of the benchmark (typically S&P 500)
Annual standard deviation of the benchmark
Results Summary
Sharpe Ratio
Treynor Ratio
Information Ratio
Jensen's Alpha
With a Sharpe Ratio of 0.43, SCHD is delivering moderate risk-adjusted returns. A ratio above 1.0 is considered good, so there may be room for improvement in the risk-return profile.
Visualization
Risk-Return Evaluation
What This Means
- A Sharpe Ratio of indicates moderate reward for the risk taken.
- The Treynor Ratio of 8.78 shows good return per unit of market risk.
- An Information Ratio of 0.51 suggests moderately outperforming the benchmark.
- Jensen's Alpha of 1.92% indicates some outperformance on a risk-adjusted basis.
Comparison to Market
SCHD is currently delivering a return that is 1.64% higher than the benchmark with 2.3% less volatility. This results in a slightly better risk-adjusted return profile.
For long-term investors focused on income and lower volatility, SCHD offers a reasonable trade-off between risk and return.
Understanding Risk-Adjusted Returns
Risk-adjusted return measures how much return an investment provides relative to the amount of risk involved. Instead of looking at returns alone, these metrics help investors understand if they're being adequately compensated for the risks they're taking.
Why Risk-Adjusted Returns Matter for SCHD
SCHD (Schwab U.S. Dividend Equity ETF) is often chosen for its dividend yield and quality focus. However, assessing its risk-adjusted performance is crucial for:
- Comparing SCHD to alternatives like other dividend ETFs or index funds beyond just looking at raw returns
- Understanding defensive characteristics during market downturns
- Evaluating if the dividend yield adequately compensates for any additional risk
- Making portfolio allocation decisions based on risk-efficiency rather than returns alone
Key Risk-Adjusted Metrics Explained
Sharpe Ratio
Measures excess return (above the risk-free rate) per unit of total risk (standard deviation). A higher Sharpe ratio indicates better risk-adjusted performance.
Formula: (SCHD Return - Risk-Free Rate) / SCHD Standard Deviation
Treynor Ratio
Measures excess return per unit of systematic (market) risk. Useful for evaluating SCHD as a diversified portfolio.
Formula: (SCHD Return - Risk-Free Rate) / SCHD Beta
Information Ratio
Measures active return relative to the benchmark per unit of tracking risk. Shows how consistently SCHD outperforms its benchmark.
Formula: (SCHD Return - Benchmark Return) / Tracking Error
Jensen's Alpha
Measures the excess return of SCHD adjusted for systematic risk exposure. Shows if SCHD's management adds value beyond its risk level.
Formula: SCHD Return - [Risk-Free Rate + SCHD Beta * (Benchmark Return - Risk-Free Rate)]
Historical Risk-Adjusted Performance of SCHD
| Time Period | Annual Return | Standard Deviation | Sharpe Ratio | Beta vs S&P 500 |
|---|---|---|---|---|
| 1-Year | 9.8% | 13.2% | 0.40 | 0.82 |
| 3-Year | 10.2% | 15.1% | 0.43 | 0.85 |
| 5-Year | 11.7% | 16.4% | 0.52 | 0.87 |
| 10-Year | 11.44% | 16.13% | 0.43 | 0.79 |
Note: Past performance does not guarantee future results. The risk-adjusted metrics shown above are based on historical data and should be used as one of many factors when making investment decisions.
Related Calculators
SCHD Dividend Yield Calculator
Calculate dividend yield and income potential for your SCHD investment.
Use CalculatorSCHD vs S&P 500 Performance
Compare SCHD's performance against the S&P 500 across various time periods.
Use CalculatorSCHD Retirement Income Calculator
Plan your retirement income strategy using SCHD's dividend potential.
Use CalculatorFrequently Asked Questions
What is a good risk-adjusted return?
Generally, a Sharpe ratio above 1.0 is considered good, above 1.5 is very good, and above 2.0 is excellent. For the Treynor ratio, higher values are better, but the actual numbers depend on market conditions. For Jensen's Alpha, positive values indicate outperformance on a risk-adjusted basis, with higher values being better.
How does SCHD's risk-adjusted performance compare to other dividend ETFs?
SCHD typically has a better risk-adjusted performance than many high-yield dividend ETFs due to its quality screen. Compared to other quality dividend ETFs, SCHD often shows competitive risk-adjusted returns, particularly during market downturns where its quality focus provides some downside protection while maintaining attractive dividend income.
Why is the risk-free rate important for these calculations?
The risk-free rate represents the return you could get without taking any risk (typically using U.S. Treasury bonds). It serves as a baseline - any investment should provide returns above this rate to compensate for the additional risk. When the risk-free rate changes, the risk-adjusted return metrics will also change, even if the investment's performance remains the same.
How often should I evaluate SCHD's risk-adjusted performance?
For long-term investors, evaluating risk-adjusted performance annually is typically sufficient. However, during periods of market volatility or significant changes in interest rates, more frequent evaluations might be warranted. Remember that SCHD is designed as a long-term investment, so short-term fluctuations in risk-adjusted metrics should be viewed in context.