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 SMID 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

0.73

Correlation Coefficient

First Trust  Matthews China

Poor diversification

The 3 months correlation between First and Matthews is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SMID 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 SMID 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 2.06 times less return on investment than Matthews China. But when comparing it to its historical volatility, First Trust SMID is 1.07 times less risky than Matthews China. It trades about 0.12 of its potential returns per unit of risk. Matthews China Discovery is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,700  in Matthews China Discovery on April 30, 2025 and sell it today you would earn a total of  431.00  from holding Matthews China Discovery or generate 15.96% return on investment over 90 days.

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

First Trust SMID  vs.  Matthews China Discovery

First Trust SMID

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SMID are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Matthews China Discovery

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Discovery are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical indicators, Matthews China unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

The idea behind First Trust SMID and Matthews China Discovery 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.