Correlation Between Matthews China and Direxion Shares

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

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

Diversification Opportunities for Matthews China and Direxion Shares

0.5

Correlation Coefficient

Matthews China  Direxion Shares

Very weak diversification

The 3 months correlation between Matthews and Direxion is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF 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 Discovery are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of Matthews China i.e., Matthews China and Direxion Shares go up and down completely randomly.

Pair Corralation between Matthews China and Direxion Shares

Given the investment horizon of 90 days Matthews China is expected to generate 2.57 times less return on investment than Direxion Shares. In addition to that, Matthews China is 1.04 times more volatile than Direxion Shares ETF. It trades about 0.08 of its total potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.22 per unit of volatility. If you would invest  3,047  in Direxion Shares ETF on September 3, 2024 and sell it today you would earn a total of  1,353  from holding Direxion Shares ETF or generate 44.4% return on investment over 90 days.

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

Matthews China Discovery  vs.  Direxion Shares ETF

Matthews China Discovery

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Discovery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical indicators, Matthews China unveiled solid returns over the last few months and may actually be approaching a breakup point.

Direxion Shares ETF

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Shares ETF are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Direxion Shares unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matthews China and Direxion Shares

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

The idea behind Matthews China Discovery and Direxion Shares ETF 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.