Correlation Between Matthews Japan and Hennessy Japan

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

Diversification Opportunities for Matthews Japan and Hennessy Japan

0.97

Correlation Coefficient

Matthews Japan  Hennessy Japan

Almost no diversification

The 3 months correlation between Matthews and Hennessy is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Matthews Japan Fund and Hennessy Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Japan 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 Hennessy Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Japan has no effect on the direction of Matthews Japan i.e., Matthews Japan and Hennessy Japan go up and down completely randomly.

Pair Corralation between Matthews Japan and Hennessy Japan

Assuming the 90 days horizon Matthews Japan Fund is expected to under-perform the Hennessy Japan. But the mutual fund apears to be less risky and, when comparing its historical volatility, Matthews Japan Fund is 1.1 times less risky than Hennessy Japan. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Hennessy Japan Fund is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,508  in Hennessy Japan Fund on August 31, 2024 and sell it today you would lose (107.00) from holding Hennessy Japan Fund or give up 2.37% of portfolio value over 90 days.

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

Matthews Japan Fund  vs.  Hennessy Japan Fund

Matthews Japan

Risk-Adjusted Performance

0 of 100

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.

Hennessy Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hennessy Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Hennessy 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 Hennessy Japan

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

The idea behind Matthews Japan Fund and Hennessy Japan 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.