Correlation Between Matthews China and IShares MSCI

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

Diversification Opportunities for Matthews China and IShares MSCI

0.66

Correlation Coefficient

Matthews China  IShares MSCI

Poor diversification

The 3 months correlation between Matthews and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EAFE has no effect on the direction of Matthews China i.e., Matthews China and IShares MSCI go up and down completely randomly.

Pair Corralation between Matthews China and IShares MSCI

Given the investment horizon of 90 days Matthews China Discovery is expected to under-perform the IShares MSCI. In addition to that, Matthews China is 1.89 times more volatile than iShares MSCI EAFE. It trades about -0.32 of its total potential returns per unit of risk. iShares MSCI EAFE is currently generating about -0.25 per unit of volatility. If you would invest  6,302  in iShares MSCI EAFE on October 10, 2024 and sell it today you would lose (226.00) from holding iShares MSCI EAFE or give up 3.59% of portfolio value over 90 days.

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

Matthews China Discovery  vs.  iShares MSCI EAFE

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.

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matthews China and IShares MSCI

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

The idea behind Matthews China Discovery and iShares MSCI EAFE 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.