Correlation Between Matthews China and Goldman Sachs

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

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

Diversification Opportunities for Matthews China and Goldman Sachs

0.8

Correlation Coefficient

Matthews China  Goldman Sachs

Very poor diversification

The 3 months correlation between Matthews and Goldman is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and Goldman Sachs MarketBeta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs MarketBeta 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 Discovery are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs MarketBeta has no effect on the direction of Matthews China i.e., Matthews China and Goldman Sachs go up and down completely randomly.

Pair Corralation between Matthews China and Goldman Sachs

Given the investment horizon of 90 days Matthews China Discovery is expected to generate 2.02 times more return on investment than Goldman Sachs. However, Matthews China is 2.02 times more volatile than Goldman Sachs MarketBeta. It trades about -0.03 of its potential returns per unit of risk. Goldman Sachs MarketBeta is currently generating about -0.06 per unit of risk. If you would invest  2,697  in Matthews China Discovery on October 27, 2024 and sell it today you would lose (109.00) from holding Matthews China Discovery or give up 4.04% of portfolio value over 90 days.

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

Matthews China Discovery  vs.  Goldman Sachs MarketBeta

Matthews China Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Matthews China Discovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Matthews China is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Goldman Sachs MarketBeta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs MarketBeta has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Goldman Sachs is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Matthews China and Goldman Sachs

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

The idea behind Matthews China Discovery and Goldman Sachs MarketBeta 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.