Correlation Between Matthews China and Capital World

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

By analyzing existing cross correlation between Matthews China Fund and Capital World Growth, you can compare the effects of market volatilities on Matthews China and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews China and Capital World.

Diversification Opportunities for Matthews China and Capital World

0.25

Correlation Coefficient

Matthews China  Capital World

Modest diversification

The 3 months correlation between Matthews and Capital is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Fund and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 Fund are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Matthews China i.e., Matthews China and Capital World go up and down completely randomly.

Pair Corralation between Matthews China and Capital World

Assuming the 90 days horizon Matthews China Fund is expected to under-perform the Capital World. In addition to that, Matthews China is 2.31 times more volatile than Capital World Growth. It trades about 0.0 of its total potential returns per unit of risk. Capital World Growth is currently generating about 0.07 per unit of volatility. If you would invest  4,917  in Capital World Growth on September 24, 2024 and sell it today you would earn a total of  1,372  from holding Capital World Growth or generate 27.9% return on investment over 90 days.

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

Matthews China Fund  vs.  Capital World Growth

Matthews China

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Fund are ranked lower than 3 (%) 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 January 2025.

Capital World Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Matthews China and Capital World

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

The idea behind Matthews China Fund and Capital World Growth 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 CEOs Directory module to screen CEOs from public companies around the world.