Correlation Between FlexShares Morningstar and Matthews Emerging

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

By analyzing existing cross correlation between FlexShares Morningstar Emerging and Matthews Emerging Markets, you can compare the effects of market volatilities on FlexShares Morningstar and Matthews Emerging 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 FlexShares Morningstar with a short position of Matthews Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Morningstar and Matthews Emerging.

Diversification Opportunities for FlexShares Morningstar and Matthews Emerging

0.84

Correlation Coefficient

FlexShares Morningstar  Matthews Emerging

Very poor diversification

The 3 months correlation between FlexShares and Matthews is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Morningstar Emergin and Matthews Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews Emerging Markets and FlexShares Morningstar 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 FlexShares Morningstar Emerging are associated (or correlated) with Matthews Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews Emerging Markets has no effect on the direction of FlexShares Morningstar i.e., FlexShares Morningstar and Matthews Emerging go up and down completely randomly.

Pair Corralation between FlexShares Morningstar and Matthews Emerging

Given the investment horizon of 90 days FlexShares Morningstar Emerging is expected to generate 0.97 times more return on investment than Matthews Emerging. However, FlexShares Morningstar Emerging is 1.04 times less risky than Matthews Emerging. It trades about 0.02 of its potential returns per unit of risk. Matthews Emerging Markets is currently generating about -0.02 per unit of risk. If you would invest  5,313  in FlexShares Morningstar Emerging on September 2, 2024 and sell it today you would earn a total of  64.00  from holding FlexShares Morningstar Emerging or generate 1.2% return on investment over 90 days.

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

FlexShares Morningstar Emergin  vs.  Matthews Emerging Markets

FlexShares Morningstar

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Morningstar Emerging are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FlexShares Morningstar is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Matthews Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Matthews Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Matthews Emerging is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with FlexShares Morningstar and Matthews Emerging

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

The idea behind FlexShares Morningstar Emerging and Matthews Emerging Markets 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.