Correlation Between Matthews China and American Beacon

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

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

Diversification Opportunities for Matthews China and American Beacon

0.51

Correlation Coefficient

Matthews China  American Beacon

Very weak diversification

The 3 months correlation between Matthews and American is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Small and American Beacon Bridgeway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Bridgeway 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 Small are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Bridgeway has no effect on the direction of Matthews China i.e., Matthews China and American Beacon go up and down completely randomly.

Pair Corralation between Matthews China and American Beacon

Assuming the 90 days horizon Matthews China Small is expected to generate 2.76 times more return on investment than American Beacon. However, Matthews China is 2.76 times more volatile than American Beacon Bridgeway. It trades about 0.1 of its potential returns per unit of risk. American Beacon Bridgeway is currently generating about 0.18 per unit of risk. If you would invest  798.00  in Matthews China Small on September 4, 2024 and sell it today you would earn a total of  112.00  from holding Matthews China Small or generate 14.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Matthews China Small  vs.  American Beacon Bridgeway

Matthews China Small

Risk-Adjusted Performance

8 of 100

OK

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

American Beacon Bridgeway

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Bridgeway are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Matthews China and American Beacon

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

The idea behind Matthews China Small and American Beacon Bridgeway 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.