Correlation Between Matthews China and Matthews Emerging

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

Diversification Opportunities for Matthews China and Matthews Emerging

0.91

Correlation Coefficient

Matthews China  Matthews Emerging

Almost no diversification

The 3 months correlation between Matthews and Matthews is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Small 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 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 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 Matthews China i.e., Matthews China and Matthews Emerging go up and down completely randomly.

Pair Corralation between Matthews China and Matthews Emerging

Assuming the 90 days horizon Matthews China Small is expected to generate 1.2 times more return on investment than Matthews Emerging. However, Matthews China is 1.2 times more volatile than Matthews Emerging Markets. It trades about 0.18 of its potential returns per unit of risk. Matthews Emerging Markets is currently generating about 0.16 per unit of risk. If you would invest  952.00  in Matthews China Small on May 6, 2025 and sell it today you would earn a total of  102.00  from holding Matthews China Small or generate 10.71% return on investment over 90 days.

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

Matthews China Small  vs.  Matthews Emerging Markets

Matthews China Small

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Small are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Matthews China may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Matthews Emerging Markets

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews Emerging Markets are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Matthews Emerging may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Matthews China and Matthews Emerging

The main advantage of trading using opposite Matthews China and Matthews Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews China 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 Matthews China Small 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.