Correlation Between First Trust and Matthews China
Can any of the company-specific risk be diversified away by investing in both First Trust and Matthews 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 First Trust and Matthews China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Exchange Traded and Matthews China Discovery, you can compare the effects of market volatilities on First Trust and Matthews 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 First Trust with a short position of Matthews China. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Matthews China.
Diversification Opportunities for First Trust and Matthews China
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between First and Matthews is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Matthews China Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews China Discovery and First Trust 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 First Trust Exchange Traded are associated (or correlated) with Matthews China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews China Discovery has no effect on the direction of First Trust i.e., First Trust and Matthews China go up and down completely randomly.
Pair Corralation between First Trust and Matthews China
Given the investment horizon of 90 days First Trust is expected to generate 20.44 times less return on investment than Matthews China. But when comparing it to its historical volatility, First Trust Exchange Traded is 9.75 times less risky than Matthews China. It trades about 0.18 of its potential returns per unit of risk. Matthews China Discovery is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 2,379 in Matthews China Discovery on July 5, 2024 and sell it today you would earn a total of 631.00 from holding Matthews China Discovery or generate 26.52% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
First Trust Exchange Traded vs. Matthews China Discovery
Performance |
Timeline |
First Trust Exchange |
Matthews China Discovery |
First Trust and Matthews China Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and Matthews China
The main advantage of trading using opposite First Trust and Matthews China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Matthews 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 Matthews China will offset losses from the drop in Matthews China's long position.First Trust vs. HUMANA INC | First Trust vs. Aquagold International | First Trust vs. Barloworld Ltd ADR | First Trust vs. Thrivent High Yield |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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