Correlation Between Matthews China and Matthews Asia

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

Diversification Opportunities for Matthews China and Matthews Asia

0.6

Correlation Coefficient

Matthews China  Matthews Asia

Poor diversification

The 3 months correlation between Matthews and Matthews is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Small and Matthews Asia Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews Asia Dividend 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 Matthews Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews Asia Dividend has no effect on the direction of Matthews China i.e., Matthews China and Matthews Asia go up and down completely randomly.

Pair Corralation between Matthews China and Matthews Asia

Assuming the 90 days horizon Matthews China Small is expected to under-perform the Matthews Asia. In addition to that, Matthews China is 2.01 times more volatile than Matthews Asia Dividend. It trades about -0.09 of its total potential returns per unit of risk. Matthews Asia Dividend is currently generating about -0.08 per unit of volatility. If you would invest  1,482  in Matthews Asia Dividend on September 2, 2024 and sell it today you would lose (20.00) from holding Matthews Asia Dividend or give up 1.35% of portfolio value over 90 days.

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

Matthews China Small  vs.  Matthews Asia Dividend

Matthews China Small

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Small are ranked lower than 7 (%) 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.

Matthews Asia Dividend

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews Asia Dividend are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Matthews Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matthews China and Matthews Asia

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

The idea behind Matthews China Small and Matthews Asia Dividend 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.