Correlation Between Small Cap and Heartland Value

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

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

Diversification Opportunities for Small Cap and Heartland Value

0.78

Correlation Coefficient

Small Cap  Heartland Value

Poor diversification

The 3 months correlation between Small and Heartland is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Heartland Value Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Value Plus and Small Cap 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 Small Cap Value Fund are associated (or correlated) with Heartland Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Value Plus has no effect on the direction of Small Cap i.e., Small Cap and Heartland Value go up and down completely randomly.

Pair Corralation between Small Cap and Heartland Value

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 1.18 times more return on investment than Heartland Value. However, Small Cap is 1.18 times more volatile than Heartland Value Plus. It trades about 0.02 of its potential returns per unit of risk. Heartland Value Plus is currently generating about 0.0 per unit of risk. If you would invest  3,342  in Small Cap Value Fund on September 26, 2024 and sell it today you would earn a total of  425.00  from holding Small Cap Value Fund or generate 12.72% return on investment over 90 days.

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

Small Cap Value Fund  vs.  Heartland Value Plus

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Heartland Value Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heartland Value Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Heartland 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 Small Cap and Heartland Value

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

The idea behind Small Cap Value Fund and Heartland Value Plus 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.