Correlation Between Matthews Japan and Matthews Asia

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

Diversification Opportunities for Matthews Japan and Matthews Asia

0.6

Correlation Coefficient

Matthews Japan  Matthews Asia

Poor diversification

The 3 months correlation between Matthews and Matthews is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Matthews Japan Fund and Matthews Asia Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews Asia Dividend 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 Matthews Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews Asia Dividend has no effect on the direction of Matthews Japan i.e., Matthews Japan and Matthews Asia go up and down completely randomly.

Pair Corralation between Matthews Japan and Matthews Asia

Assuming the 90 days horizon Matthews Japan Fund is expected to generate 1.35 times more return on investment than Matthews Asia. However, Matthews Japan is 1.35 times more volatile than Matthews Asia Dividend. It trades about 0.0 of its potential returns per unit of risk. Matthews Asia Dividend is currently generating about -0.01 per unit of risk. If you would invest  2,105  in Matthews Japan Fund on September 14, 2024 and sell it today you would lose (3.00) from holding Matthews Japan Fund or give up 0.14% of portfolio value over 90 days.

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

Matthews Japan Fund  vs.  Matthews Asia Dividend

Matthews Japan

Risk-Adjusted Performance

0 of 100

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 basic indicators, Matthews Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Matthews Asia Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Matthews Asia Dividend has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Matthews Asia 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 Matthews Asia

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

The idea behind Matthews Japan Fund and Matthews Asia Dividend 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.