Correlation Between Matthews China and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Matthews China and Northern Lights 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 Northern Lights 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 Northern Lights, you can compare the effects of market volatilities on Matthews China and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews China and Northern Lights.
Diversification Opportunities for Matthews China and Northern Lights
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Matthews and Northern is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Matthews China Discovery and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Matthews China i.e., Matthews China and Northern Lights go up and down completely randomly.
Pair Corralation between Matthews China and Northern Lights
Given the investment horizon of 90 days Matthews China Discovery is expected to under-perform the Northern Lights. In addition to that, Matthews China is 2.75 times more volatile than Northern Lights. It trades about -0.04 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.37 per unit of volatility. If you would invest 3,407 in Northern Lights on September 1, 2024 and sell it today you would earn a total of 188.00 from holding Northern Lights or generate 5.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Matthews China Discovery vs. Northern Lights
Performance |
| Timeline |
| Matthews China Discovery |
| Northern Lights |
Matthews China and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Matthews China and Northern Lights
The main advantage of trading using opposite Matthews China and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews China position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Matthews China vs. FT Vest Equity | Matthews China vs. Northern Lights | Matthews China vs. Dimensional International High | Matthews China vs. Davis Select International |
| Northern Lights vs. Sterling Capital Focus | Northern Lights vs. Roundhill ETF Trust | Northern Lights vs. Northern Lights | Northern Lights vs. First Trust Exchange Traded |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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