Correlation Between Matthews Asia and Matthews Japan

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

By analyzing existing cross correlation between Matthews Asia Innovators and Matthews Japan Fund, you can compare the effects of market volatilities on Matthews Asia and Matthews Japan 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 Matthews Asia with a short position of Matthews Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews Asia and Matthews Japan.

Diversification Opportunities for Matthews Asia and Matthews Japan

0.7

Correlation Coefficient

Matthews Asia  Matthews Japan

Poor diversification

The 3 months correlation between Matthews and Matthews is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Matthews Asia Innovators and Matthews Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews Japan and Matthews Asia 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 Matthews Asia Innovators are associated (or correlated) with Matthews Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews Japan has no effect on the direction of Matthews Asia i.e., Matthews Asia and Matthews Japan go up and down completely randomly.

Pair Corralation between Matthews Asia and Matthews Japan

Assuming the 90 days horizon Matthews Asia Innovators is expected to generate 1.21 times more return on investment than Matthews Japan. However, Matthews Asia is 1.21 times more volatile than Matthews Japan Fund. It trades about 0.02 of its potential returns per unit of risk. Matthews Japan Fund is currently generating about -0.05 per unit of risk. If you would invest  1,331  in Matthews Asia Innovators on December 1, 2024 and sell it today you would earn a total of  14.00  from holding Matthews Asia Innovators or generate 1.05% return on investment over 90 days.

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

Matthews Asia Innovators  vs.  Matthews Japan Fund

Matthews Asia Innovators

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews Asia Innovators are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Matthews Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Matthews Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matthews Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Matthews Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matthews Asia and Matthews Japan

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

The idea behind Matthews Asia Innovators and Matthews Japan Fund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.