Correlation Between Empire State and Matthews China

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

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

Diversification Opportunities for Empire State and Matthews China

0.44

Correlation Coefficient

Empire State  Matthews China

Very weak diversification

The 3 months correlation between Empire and Matthews is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Matthews China Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews China Dividend and Empire State 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 Empire State Realty 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 Dividend has no effect on the direction of Empire State i.e., Empire State and Matthews China go up and down completely randomly.

Pair Corralation between Empire State and Matthews China

Given the investment horizon of 90 days Empire State is expected to generate 3.37 times less return on investment than Matthews China. But when comparing it to its historical volatility, Empire State Realty is 1.74 times less risky than Matthews China. It trades about 0.04 of its potential returns per unit of risk. Matthews China Dividend is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,063  in Matthews China Dividend on August 30, 2024 and sell it today you would earn a total of  116.00  from holding Matthews China Dividend or generate 10.91% return on investment over 90 days.

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

Empire State Realty  vs.  Matthews China Dividend

Empire State Realty

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Empire State is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Matthews China Dividend

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Dividend 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 December 2024.

Pair Trading with Empire State and Matthews China

The main advantage of trading using opposite Empire State and Matthews China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empire State 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 Empire State Realty and Matthews China 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.