Correlation Between Matthews China and Fidelity China

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

Diversification Opportunities for Matthews China and Fidelity China

0.97

Correlation Coefficient

Matthews China  Fidelity China

Almost no diversification

The 3 months correlation between Matthews and Fidelity is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Fund and Fidelity China Region in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity China Region 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 Fidelity China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity China Region has no effect on the direction of Matthews China i.e., Matthews China and Fidelity China go up and down completely randomly.

Pair Corralation between Matthews China and Fidelity China

Assuming the 90 days horizon Matthews China Fund is expected to generate 1.84 times more return on investment than Fidelity China. However, Matthews China is 1.84 times more volatile than Fidelity China Region. It trades about 0.14 of its potential returns per unit of risk. Fidelity China Region is currently generating about 0.11 per unit of risk. If you would invest  1,103  in Matthews China Fund on September 13, 2024 and sell it today you would earn a total of  318.00  from holding Matthews China Fund or generate 28.83% return on investment over 90 days.

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

Matthews China Fund  vs.  Fidelity China Region

Matthews China

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Fund are ranked lower than 10 (%) 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.

Fidelity China Region

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity China Region are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Matthews China and Fidelity China

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

The idea behind Matthews China Fund and Fidelity China Region 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.