Correlation Matrix of China's Four Major A-Share Indexes: How Limited Is Index Diversification?
Bottom line: the average pairwise correlation of daily returns across the four major A-share indexes is 0.86, and even the loosest pair (CSI 300 vs ChiNext) still runs 0.75 — rotating between A-share indexes buys you very little diversification in practice.
| Shanghai Composite | Shenzhen Component | ChiNext | CSI 300 | |
|---|---|---|---|---|
| Shanghai Composite | 1.000 | 0.918 | 0.735 | 0.972 |
| Shenzhen Component | 0.918 | 1.000 | 0.861 | 0.934 |
| ChiNext | 0.735 | 0.861 | 1.000 | 0.750 |
| CSI 300 | 0.972 | 0.934 | 0.750 | 1.000 |
Methodology
Pearson correlation of daily close-to-close returns, computed on the trading days where all four indexes overlap from 2010 through 2026-11-06 (about 3,989 aligned days). This is a static full-sample estimate; it hides the tendency of correlations to rise in bear markets and crises, which is precisely when diversification is needed most.
What it means for investors
(1) In a portfolio whose assets correlate above 0.8, the volatility reduction approaches that of the least volatile member alone — there is no "risk cut in half" effect. (2) Genuine diversification requires assets with low correlation to A-share beta: bonds, commodities, cash. (3) Correlation is not a constant: it tends to spike in stress periods, so backtests that assume a fixed correlation will overstate the protection a multi-index A-share allocation provides.
Frequently asked questions
How correlated are CSI 300 and ChiNext?
About 0.75 on daily returns, 2010-2026 — the lowest pair among the four indexes, and still high.
Why are all four A-share indexes so correlated?
Overlapping large-cap constituents, shared macro liquidity and risk-appetite drivers: A-share returns are dominated by systematic risk rather than index-specific factors.
Disclaimer: this article is data research built on publicly available finance data — it is not investment advice, not a recommendation, and not an offer to buy or sell any security or futures contract. All figures are recomputable from the CSV files linked on this site.