Correlation Between IShares MSCI and Matthews China

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

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

Diversification Opportunities for IShares MSCI and Matthews China

0.85

Correlation Coefficient

IShares MSCI  Matthews China

Very poor diversification

The 3 months correlation between IShares and Matthews is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and Matthews China Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews China Active and IShares MSCI 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 MSCI China are associated (or correlated) with Matthews China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews China Active has no effect on the direction of IShares MSCI i.e., IShares MSCI and Matthews China go up and down completely randomly.

Pair Corralation between IShares MSCI and Matthews China

Given the investment horizon of 90 days IShares MSCI is expected to generate 5.86 times less return on investment than Matthews China. But when comparing it to its historical volatility, iShares MSCI China is 1.38 times less risky than Matthews China. It trades about 0.04 of its potential returns per unit of risk. Matthews China Active is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,232  in Matthews China Active on December 20, 2024 and sell it today you would earn a total of  368.00  from holding Matthews China Active or generate 16.49% return on investment over 90 days.

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

iShares MSCI China  vs.  Matthews China Active

iShares MSCI China

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Matthews China Active

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Active are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Matthews China demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and Matthews China

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

The idea behind iShares MSCI China and Matthews China Active 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.