Correlation Between Principal Value and Matthews China

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

By analyzing existing cross correlation between Principal Value ETF and Matthews China Discovery, you can compare the effects of market volatilities on Principal Value 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 Principal Value with a short position of Matthews China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Value and Matthews China.

Diversification Opportunities for Principal Value and Matthews China

0.33

Correlation Coefficient

Principal Value  Matthews China

Weak diversification

The 3 months correlation between Principal and Matthews is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Principal Value ETF 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 Principal Value 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 Principal Value ETF 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 Principal Value i.e., Principal Value and Matthews China go up and down completely randomly.

Pair Corralation between Principal Value and Matthews China

Allowing for the 90-day total investment horizon Principal Value ETF is expected to under-perform the Matthews China. But the etf apears to be less risky and, when comparing its historical volatility, Principal Value ETF is 1.39 times less risky than Matthews China. The etf trades about -0.09 of its potential returns per unit of risk. The Matthews China Discovery is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,631  in Matthews China Discovery on January 24, 2025 and sell it today you would earn a total of  17.00  from holding Matthews China Discovery or generate 0.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Principal Value ETF  vs.  Matthews China Discovery

Principal Value ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Value ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Matthews China Discovery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Discovery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, Matthews China is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Principal Value and Matthews China

The main advantage of trading using opposite Principal Value and Matthews China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Value 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 Principal Value ETF 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.