Correlation Between Matthews China and Matthews Asia

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

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

Diversification Opportunities for Matthews China and Matthews Asia

0.81

Correlation Coefficient

Matthews China  Matthews Asia

Very poor diversification

The 3 months correlation between Matthews and Matthews is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Active and Matthews Asia Innovators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews Asia Innovators and Matthews China 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 China Active are associated (or correlated) with Matthews Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews Asia Innovators has no effect on the direction of Matthews China i.e., Matthews China and Matthews Asia go up and down completely randomly.

Pair Corralation between Matthews China and Matthews Asia

Considering the 90-day investment horizon Matthews China Active is expected to generate 1.2 times more return on investment than Matthews Asia. However, Matthews China is 1.2 times more volatile than Matthews Asia Innovators. It trades about 0.13 of its potential returns per unit of risk. Matthews Asia Innovators is currently generating about 0.04 per unit of risk. If you would invest  2,234  in Matthews China Active on December 21, 2024 and sell it today you would earn a total of  290.00  from holding Matthews China Active or generate 12.98% return on investment over 90 days.

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

Matthews China Active  vs.  Matthews Asia Innovators

Matthews China Active

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Active are ranked lower than 10 (%) 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.

Matthews Asia Innovators

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews Asia Innovators are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Matthews Asia is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Matthews China and Matthews Asia

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

The idea behind Matthews China Active and Matthews Asia Innovators 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.