Correlation Between Matthews China and Hennessy Japan

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

Diversification Opportunities for Matthews China and Hennessy Japan

0.15

Correlation Coefficient

Matthews China  Hennessy Japan

Average diversification

The 3 months correlation between Matthews and Hennessy is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Dividend 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 China 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 China Dividend 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 China i.e., Matthews China and Hennessy Japan go up and down completely randomly.

Pair Corralation between Matthews China and Hennessy Japan

Assuming the 90 days horizon Matthews China is expected to generate 1.65 times less return on investment than Hennessy Japan. In addition to that, Matthews China is 1.08 times more volatile than Hennessy Japan Fund. It trades about 0.04 of its total potential returns per unit of risk. Hennessy Japan Fund is currently generating about 0.06 per unit of volatility. If you would invest  3,441  in Hennessy Japan Fund on September 17, 2024 and sell it today you would earn a total of  876.00  from holding Hennessy Japan Fund or generate 25.46% return on investment over 90 days.

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

Matthews China Dividend  vs.  Hennessy Japan Fund

Matthews China Dividend

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Dividend are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Matthews China showed solid returns over the last few months and may actually be approaching a breakup point.

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 China and Hennessy Japan

The main advantage of trading using opposite Matthews China and Hennessy Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews China 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 China Dividend 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.