Correlation Between Matthews China and Sparta Capital

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

Diversification Opportunities for Matthews China and Sparta Capital

-0.05

Correlation Coefficient

Matthews China  Sparta Capital

Good diversification

The 3 months correlation between Matthews and Sparta is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Fund and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital 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 Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of Matthews China i.e., Matthews China and Sparta Capital go up and down completely randomly.

Pair Corralation between Matthews China and Sparta Capital

Assuming the 90 days horizon Matthews China Fund is expected to generate 1.05 times more return on investment than Sparta Capital. However, Matthews China is 1.05 times more volatile than Sparta Capital. It trades about 0.12 of its potential returns per unit of risk. Sparta Capital is currently generating about -0.12 per unit of risk. If you would invest  1,125  in Matthews China Fund on September 3, 2024 and sell it today you would earn a total of  259.00  from holding Matthews China Fund or generate 23.02% return on investment over 90 days.

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

Matthews China Fund  vs.  Sparta Capital

Matthews China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Fund are ranked lower than 9 (%) 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.

Sparta Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sparta Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Matthews China and Sparta Capital

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

The idea behind Matthews China Fund and Sparta Capital 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.