Correlation Between SPDR SP and Matthews China

Can any of the company-specific risk be diversified away by investing in both SPDR SP and Matthews China 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 SPDR SP and Matthews China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR SP 400 and Matthews China Discovery, you can compare the effects of market volatilities on SPDR SP and Matthews China 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 SPDR SP with a short position of Matthews China. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Matthews China.

Diversification Opportunities for SPDR SP and Matthews China

-0.45

Correlation Coefficient

SPDR SP  Matthews China

Very good diversification

The 3 months correlation between SPDR and Matthews is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Matthews China Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews China Discovery and SPDR SP 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 SPDR SP 400 are associated (or correlated) with Matthews China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews China Discovery has no effect on the direction of SPDR SP i.e., SPDR SP and Matthews China go up and down completely randomly.

Pair Corralation between SPDR SP and Matthews China

Given the investment horizon of 90 days SPDR SP 400 is expected to generate 0.54 times more return on investment than Matthews China. However, SPDR SP 400 is 1.86 times less risky than Matthews China. It trades about 0.04 of its potential returns per unit of risk. Matthews China Discovery is currently generating about -0.05 per unit of risk. If you would invest  7,860  in SPDR SP 400 on October 9, 2024 and sell it today you would earn a total of  208.00  from holding SPDR SP 400 or generate 2.65% return on investment over 90 days.

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

SPDR SP 400  vs.  Matthews China Discovery

SPDR SP 400

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with SPDR SP and Matthews China

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

The idea behind SPDR SP 400 and Matthews China Discovery 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.