Correlation Between Matthews China and First Trust
Can any of the company-specific risk be diversified away by investing in both Matthews China and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Matthews China Discovery and First Trust Dow, you can compare the effects of market volatilities on Matthews China and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews China and First Trust.
Diversification Opportunities for Matthews China and First Trust
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Matthews and First is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow 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 Discovery are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Dow has no effect on the direction of Matthews China i.e., Matthews China and First Trust go up and down completely randomly.
Pair Corralation between Matthews China and First Trust
Given the investment horizon of 90 days Matthews China Discovery is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Matthews China Discovery is 1.07 times less risky than First Trust. The etf trades about -0.06 of its potential returns per unit of risk. The First Trust Dow is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 6,422 in First Trust Dow on August 24, 2024 and sell it today you would earn a total of 644.00 from holding First Trust Dow or generate 10.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Matthews China Discovery vs. First Trust Dow
Performance |
| Timeline |
| Matthews China Discovery |
| First Trust Dow |
Matthews China and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Matthews China and First Trust
The main advantage of trading using opposite Matthews China and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews China position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Matthews China vs. Matthews Emerging Markets | Matthews China vs. Neuberger Berman ETF | Matthews China vs. Fidelity Small Mid Cap | Matthews China vs. Professionally Managed Portfolios |
| First Trust vs. iShares Micro Cap ETF | First Trust vs. Invesco SP MidCap | First Trust vs. Invesco SP SmallCap | First Trust vs. First Trust Small |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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