Not 100% clear of FXP Correlation to FTSE/Xinhua China 25 index
After reading prospectus and having daytraded this for a couple of weeks, I am still not 100% clear on the EXACT correlation of FXP to the Chinese Market. I have reviewed their top individual holdings as well and tracked these against this fund's performance. For instance, when the Chinese market tanked last week (one day loss of 2.5%), FXP was up about 4-5% which was lower then the expected return and the return on its basket of securities.
FXP management is not that competent (who is on wall street?), so the correlation is weak at best and non-existent at worst. I tried to see how HSI and FXP performance correlate since FXP was launched and the correlation is horrible! Also, FXP is being used by hedge funds and hence, moves disproportionately to HSI (check the FXP volumes and its impact on the FXP-HSI relationship). What I've seen is that FXP has ~50% move based on previous HSI move and rest 50% is pure speculation on how HSI will move next day.
However, there are hardly any other instruments to hedge against China, so my strategy is to live with FXP and use tight stops and not being gun shy to reenter the market if stopped out.
I personally feel that in 2010, FXP could hit 50+ based on volatility, so any buys at current prices have good risk-reward IMHO.
It seems the only days I do not get stopped out by noon are as follows:
- China/HSI down (confirmed in early AM) - Dow Futures down (20-30) - Move in with buy in pre-market - Big boys accumulate 9.40AM - Up 3-5% by noon, stop moved up gradually - Then stopped out after lunch with about 4% gain for day