Correlation Between Cullen Emerging and Cullen Value

Can any of the company-specific risk be diversified away by investing in both Cullen Emerging and Cullen Value 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 Cullen Emerging and Cullen Value into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cullen Emerging Markets and Cullen Value Fund, you can compare the effects of market volatilities on Cullen Emerging and Cullen Value 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 Cullen Emerging with a short position of Cullen Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cullen Emerging and Cullen Value.

Diversification Opportunities for Cullen Emerging and Cullen Value

0.25

Correlation Coefficient

Cullen Emerging  Cullen Value

Modest diversification

The 3 months correlation between Cullen and Cullen is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cullen Emerging Markets and Cullen Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cullen Value and Cullen Emerging 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 Cullen Emerging Markets are associated (or correlated) with Cullen Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cullen Value has no effect on the direction of Cullen Emerging i.e., Cullen Emerging and Cullen Value go up and down completely randomly.

Pair Corralation between Cullen Emerging and Cullen Value

Assuming the 90 days horizon Cullen Emerging Markets is expected to generate 0.99 times more return on investment than Cullen Value. However, Cullen Emerging Markets is 1.01 times less risky than Cullen Value. It trades about -0.05 of its potential returns per unit of risk. Cullen Value Fund is currently generating about -0.1 per unit of risk. If you would invest  1,264  in Cullen Emerging Markets on December 3, 2024 and sell it today you would lose (31.00) from holding Cullen Emerging Markets or give up 2.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cullen Emerging Markets  vs.  Cullen Value Fund

Cullen Emerging Markets

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cullen Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Cullen Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cullen Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cullen Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Cullen Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cullen Emerging and Cullen Value

The main advantage of trading using opposite Cullen Emerging and Cullen Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cullen Emerging position performs unexpectedly, Cullen Value 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 Cullen Value will offset losses from the drop in Cullen Value's long position.

The idea behind Cullen Emerging Markets and Cullen Value Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.