Correlation Between Matthews China and Vanguard Small

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

Diversification Opportunities for Matthews China and Vanguard Small

-0.46

Correlation Coefficient

Matthews China  Vanguard Small

Very good diversification

The 3 months correlation between Matthews and Vanguard is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Matthews China i.e., Matthews China and Vanguard Small go up and down completely randomly.

Pair Corralation between Matthews China and Vanguard Small

Given the investment horizon of 90 days Matthews China is expected to generate 1.69 times less return on investment than Vanguard Small. In addition to that, Matthews China is 1.92 times more volatile than Vanguard Small Cap Index. It trades about 0.02 of its total potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.06 per unit of volatility. If you would invest  21,466  in Vanguard Small Cap Index on October 9, 2024 and sell it today you would earn a total of  2,721  from holding Vanguard Small Cap Index or generate 12.68% return on investment over 90 days.

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

Matthews China Discovery  vs.  Vanguard Small Cap Index

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.

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matthews China and Vanguard Small

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

The idea behind Matthews China Discovery and Vanguard Small Cap Index 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.