Correlation Between Matthews China and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Matthews China and SPDR 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 SPDR 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 SPDR SP 400, you can compare the effects of market volatilities on Matthews China and SPDR 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews China and SPDR SP.

Diversification Opportunities for Matthews China and SPDR SP

-0.34

Correlation Coefficient

Matthews China  SPDR SP

Very good diversification

The 3 months correlation between Matthews and SPDR is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of Matthews China i.e., Matthews China and SPDR SP go up and down completely randomly.

Pair Corralation between Matthews China and SPDR SP

Given the investment horizon of 90 days Matthews China Discovery is expected to generate 1.95 times more return on investment than SPDR SP. However, Matthews China is 1.95 times more volatile than SPDR SP 400. It trades about 0.02 of its potential returns per unit of risk. SPDR SP 400 is currently generating about 0.03 per unit of risk. If you would invest  2,423  in Matthews China Discovery on October 9, 2024 and sell it today you would earn a total of  92.00  from holding Matthews China Discovery or generate 3.8% return on investment over 90 days.

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

Matthews China Discovery  vs.  SPDR SP 400

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.

SPDR SP 400

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP 400 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Matthews China and SPDR SP

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

The idea behind Matthews China Discovery and SPDR SP 400 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 Anywhere module to track or share privately all of your investments from the convenience of any device.