Correlation Between Matthews China and Morgan Stanley

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

By analyzing existing cross correlation between Matthews China Fund and Morgan Stanley India, you can compare the effects of market volatilities on Matthews China and Morgan Stanley 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 Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews China and Morgan Stanley.

Diversification Opportunities for Matthews China and Morgan Stanley

-0.2

Correlation Coefficient

Matthews China  Morgan Stanley

Good diversification

The 3 months correlation between Matthews and Morgan is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Fund and Morgan Stanley India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley India 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 Fund are associated (or correlated) with Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley India has no effect on the direction of Matthews China i.e., Matthews China and Morgan Stanley go up and down completely randomly.

Pair Corralation between Matthews China and Morgan Stanley

Assuming the 90 days horizon Matthews China Fund is expected to generate 2.23 times more return on investment than Morgan Stanley. However, Matthews China is 2.23 times more volatile than Morgan Stanley India. It trades about 0.13 of its potential returns per unit of risk. Morgan Stanley India is currently generating about -0.09 per unit of risk. If you would invest  1,109  in Matthews China Fund on September 15, 2024 and sell it today you would earn a total of  291.00  from holding Matthews China Fund or generate 26.24% return on investment over 90 days.

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

Matthews China Fund  vs.  Morgan Stanley India

Matthews China

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Matthews China showed solid returns over the last few months and may actually be approaching a breakup point.

Morgan Stanley India

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Morgan Stanley India has generated negative risk-adjusted returns adding no value to fund investors. Despite latest weak performance, the Fund's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the mutual fund stockholders.

Pair Trading with Matthews China and Morgan Stanley

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

The idea behind Matthews China Fund and Morgan Stanley India 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.