Correlation Between Cullen Small and Cullen Emerging

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

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

Diversification Opportunities for Cullen Small and Cullen Emerging

0.27

Correlation Coefficient

Cullen Small  Cullen Emerging

Modest diversification

The 3 months correlation between Cullen and Cullen is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cullen Small Cap and Cullen Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cullen Emerging Markets and Cullen Small 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 Small Cap are associated (or correlated) with Cullen Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cullen Emerging Markets has no effect on the direction of Cullen Small i.e., Cullen Small and Cullen Emerging go up and down completely randomly.

Pair Corralation between Cullen Small and Cullen Emerging

Assuming the 90 days horizon Cullen Small Cap is expected to under-perform the Cullen Emerging. In addition to that, Cullen Small is 1.71 times more volatile than Cullen Emerging Markets. It trades about -0.22 of its total potential returns per unit of risk. Cullen Emerging Markets is currently generating about -0.05 per unit of volatility. 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 Small Cap  vs.  Cullen Emerging Markets

Cullen Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cullen Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

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.

Pair Trading with Cullen Small and Cullen Emerging

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

The idea behind Cullen Small Cap and Cullen Emerging Markets 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.