Correlation Between Matthews Japan and Commonwealth Japan
Can any of the company-specific risk be diversified away by investing in both Matthews Japan and Commonwealth Japan 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 Japan and Commonwealth Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Matthews Japan Fund and Commonwealth Japan Fund, you can compare the effects of market volatilities on Matthews Japan and Commonwealth Japan 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 Japan with a short position of Commonwealth Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matthews Japan and Commonwealth Japan.
Diversification Opportunities for Matthews Japan and Commonwealth Japan
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Matthews and Commonwealth is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Matthews Japan Fund and Commonwealth Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Japan and Matthews Japan 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 Japan Fund are associated (or correlated) with Commonwealth Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Japan has no effect on the direction of Matthews Japan i.e., Matthews Japan and Commonwealth Japan go up and down completely randomly.
Pair Corralation between Matthews Japan and Commonwealth Japan
Assuming the 90 days horizon Matthews Japan Fund is expected to generate 1.1 times more return on investment than Commonwealth Japan. However, Matthews Japan is 1.1 times more volatile than Commonwealth Japan Fund. It trades about -0.04 of its potential returns per unit of risk. Commonwealth Japan Fund is currently generating about -0.08 per unit of risk. If you would invest 2,135 in Matthews Japan Fund on August 29, 2024 and sell it today you would lose (94.00) from holding Matthews Japan Fund or give up 4.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Matthews Japan Fund vs. Commonwealth Japan Fund
Performance |
| Timeline |
| Matthews Japan |
| Commonwealth Japan |
Matthews Japan and Commonwealth Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Matthews Japan and Commonwealth Japan
The main advantage of trading using opposite Matthews Japan and Commonwealth Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matthews Japan position performs unexpectedly, Commonwealth Japan 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 Commonwealth Japan will offset losses from the drop in Commonwealth Japan's long position.| Matthews Japan vs. Hennessy Japan Fund | Matthews Japan vs. Matthews India Fund | Matthews Japan vs. Hennessy Japan Fund | Matthews Japan vs. Matthews Asia Dividend |
| Commonwealth Japan vs. Hennessy Japan Fund | Commonwealth Japan vs. Hennessy Japan Fund | Commonwealth Japan vs. Wasatch Emerging India | Commonwealth Japan vs. Global Opportunity Portfolio |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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