Correlation Between Matthews Asia and Matthews China

Can any of the company-specific risk be diversified away by investing in both Matthews Asia 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 Asia 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 Asia Innovators and Matthews China Active, you can compare the effects of market volatilities on Matthews Asia 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 Asia with a short position of Matthews China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews Asia and Matthews China.

Diversification Opportunities for Matthews Asia and Matthews China

0.86

Correlation Coefficient

Matthews Asia  Matthews China

Very poor diversification

The 3 months correlation between Matthews and Matthews is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Matthews Asia Innovators and Matthews China Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews China Active and Matthews Asia 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 Asia Innovators 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 Active has no effect on the direction of Matthews Asia i.e., Matthews Asia and Matthews China go up and down completely randomly.

Pair Corralation between Matthews Asia and Matthews China

Given the investment horizon of 90 days Matthews Asia is expected to generate 3.78 times less return on investment than Matthews China. But when comparing it to its historical volatility, Matthews Asia Innovators is 1.18 times less risky than Matthews China. It trades about 0.03 of its potential returns per unit of risk. Matthews China Active is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,218  in Matthews China Active on December 29, 2024 and sell it today you would earn a total of  230.00  from holding Matthews China Active or generate 10.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Matthews Asia Innovators  vs.  Matthews China Active

Matthews Asia Innovators

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews Asia Innovators are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Matthews Asia is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Matthews China Active

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Active are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak 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 Asia and Matthews China

The main advantage of trading using opposite Matthews Asia and Matthews China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews Asia 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 Asia Innovators and Matthews China Active 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.