Correlation Between Matthews China and IShares SP

Can any of the company-specific risk be diversified away by investing in both Matthews China and IShares SP 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 IShares SP 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 iShares SP 500, you can compare the effects of market volatilities on Matthews China and IShares SP 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews China and IShares SP.

Diversification Opportunities for Matthews China and IShares SP

-0.52

Correlation Coefficient

Matthews China  IShares SP

Excellent diversification

The 3 months correlation between Matthews and IShares is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of Matthews China i.e., Matthews China and IShares SP go up and down completely randomly.

Pair Corralation between Matthews China and IShares SP

Given the investment horizon of 90 days Matthews China Discovery is expected to generate 1.77 times more return on investment than IShares SP. However, Matthews China is 1.77 times more volatile than iShares SP 500. It trades about 0.11 of its potential returns per unit of risk. iShares SP 500 is currently generating about -0.07 per unit of risk. If you would invest  2,574  in Matthews China Discovery on December 29, 2024 and sell it today you would earn a total of  243.00  from holding Matthews China Discovery or generate 9.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Matthews China Discovery  vs.  iShares SP 500

Matthews China Discovery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Discovery are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical indicators, Matthews China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Matthews China and IShares SP

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

The idea behind Matthews China Discovery and iShares SP 500 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.