Correlation Between Matthews Japan and Fidelity Japan

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

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

Diversification Opportunities for Matthews Japan and Fidelity Japan

0.84

Correlation Coefficient

Matthews Japan  Fidelity Japan

Very poor diversification

The 3 months correlation between Matthews and Fidelity is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Matthews Japan Fund and Fidelity Japan Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Japan Smaller and Matthews Japan 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 Japan Fund are associated (or correlated) with Fidelity Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Japan Smaller has no effect on the direction of Matthews Japan i.e., Matthews Japan and Fidelity Japan go up and down completely randomly.

Pair Corralation between Matthews Japan and Fidelity Japan

Assuming the 90 days horizon Matthews Japan Fund is expected to generate 0.94 times more return on investment than Fidelity Japan. However, Matthews Japan Fund is 1.06 times less risky than Fidelity Japan. It trades about 0.0 of its potential returns per unit of risk. Fidelity Japan Smaller is currently generating about -0.06 per unit of risk. If you would invest  2,054  in Matthews Japan Fund on November 29, 2024 and sell it today you would lose (10.00) from holding Matthews Japan Fund or give up 0.49% of portfolio value over 90 days.

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

Matthews Japan Fund  vs.  Fidelity Japan Smaller

Matthews Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matthews Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Matthews Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Japan Smaller

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Japan Smaller has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matthews Japan and Fidelity Japan

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

The idea behind Matthews Japan Fund and Fidelity Japan Smaller 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.