Correlation Between Matthews China and Vanguard Growth

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

Diversification Opportunities for Matthews China and Vanguard Growth

-0.22

Correlation Coefficient

Matthews China  Vanguard Growth

Very good diversification

The 3 months correlation between Matthews and Vanguard is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Fund and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index 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 Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Index has no effect on the direction of Matthews China i.e., Matthews China and Vanguard Growth go up and down completely randomly.

Pair Corralation between Matthews China and Vanguard Growth

Assuming the 90 days horizon Matthews China is expected to generate 1.52 times less return on investment than Vanguard Growth. In addition to that, Matthews China is 1.89 times more volatile than Vanguard Growth Index. It trades about 0.04 of its total potential returns per unit of risk. Vanguard Growth Index is currently generating about 0.12 per unit of volatility. If you would invest  15,941  in Vanguard Growth Index on September 24, 2024 and sell it today you would earn a total of  5,540  from holding Vanguard Growth Index or generate 34.75% 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.  Vanguard Growth Index

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.

Vanguard Growth Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Matthews China and Vanguard Growth

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

The idea behind Matthews China Fund and Vanguard Growth Index 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.