Correlation Between SPDR SP and Matthews China

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Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Matthews China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP China and Matthews China Active, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Matthews China. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Matthews China.

Diversification Opportunities for SPDR SP and Matthews China

1.0
  Correlation Coefficient

No risk reduction

The 3 months correlation between SPDR and Matthews is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP China 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 SPDR SP 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 SPDR SP China 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 SPDR SP i.e., SPDR SP and Matthews China go up and down completely randomly.

Pair Corralation between SPDR SP and Matthews China

Considering the 90-day investment horizon SPDR SP is expected to generate 1.35 times less return on investment than Matthews China. But when comparing it to its historical volatility, SPDR SP China is 1.13 times less risky than Matthews China. It trades about 0.08 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  1,886  in Matthews China Active on August 30, 2024 and sell it today you would earn a total of  383.00  from holding Matthews China Active or generate 20.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

SPDR SP China  vs.  Matthews China Active

 Performance 
       Timeline  
SPDR SP China 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP China are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish basic indicators, SPDR SP exhibited solid returns over the last few months and may actually be approaching a breakup point.
Matthews China Active 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Active are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Matthews China demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP and Matthews China Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR SP and Matthews China

The main advantage of trading using opposite SPDR SP and Matthews China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP China 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.
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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