Correlation Between Matthews China and Invesco SP

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

Diversification Opportunities for Matthews China and Invesco SP

-0.26

Correlation Coefficient

Matthews China  Invesco SP

Very good diversification

The 3 months correlation between Matthews and Invesco is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of Matthews China i.e., Matthews China and Invesco SP go up and down completely randomly.

Pair Corralation between Matthews China and Invesco SP

Given the investment horizon of 90 days Matthews China is expected to generate 1.59 times less return on investment than Invesco SP. In addition to that, Matthews China is 1.57 times more volatile than Invesco SP SmallCap. It trades about 0.02 of its total potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.05 per unit of volatility. If you would invest  3,916  in Invesco SP SmallCap on October 9, 2024 and sell it today you would earn a total of  1,118  from holding Invesco SP SmallCap or generate 28.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.4%
Values	Daily Returns

Matthews China Discovery  vs.  Invesco SP SmallCap

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.

Invesco SP SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Matthews China and Invesco SP

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

The idea behind Matthews China Discovery and Invesco SP SmallCap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.