Correlation Between Matthews India and Matthews China

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

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

Diversification Opportunities for Matthews India and Matthews China

-0.26

Correlation Coefficient

Matthews India  Matthews China

Very good diversification

The 3 months correlation between Matthews and Matthews is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Matthews India Fund and Matthews China Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews China and Matthews India 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 India Fund 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 has no effect on the direction of Matthews India i.e., Matthews India and Matthews China go up and down completely randomly.

Pair Corralation between Matthews India and Matthews China

Assuming the 90 days horizon Matthews India Fund is expected to under-perform the Matthews China. In addition to that, Matthews India is 1.14 times more volatile than Matthews China Fund. It trades about -0.25 of its total potential returns per unit of risk. Matthews China Fund is currently generating about 0.08 per unit of volatility. If you would invest  1,355  in Matthews China Fund on December 4, 2024 and sell it today you would earn a total of  103.00  from holding Matthews China Fund or generate 7.6% return on investment over 90 days.

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

Matthews India Fund  vs.  Matthews China Fund

Matthews India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matthews India Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Matthews China

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Matthews China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Matthews India and Matthews China

The main advantage of trading using opposite Matthews India and Matthews China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews India 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 Matthews India Fund and Matthews China Fund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.