Correlation Between Equity Series and Heartland Value

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

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

Diversification Opportunities for Equity Series and Heartland Value

0.9

Correlation Coefficient

Equity Series  Heartland Value

Almost no diversification

The 3 months correlation between Equity and Heartland is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Equity Series Class 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 Equity Series 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 Equity Series Class 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 Equity Series i.e., Equity Series and Heartland Value go up and down completely randomly.

Pair Corralation between Equity Series and Heartland Value

Assuming the 90 days horizon Equity Series Class is expected to generate 0.81 times more return on investment than Heartland Value. However, Equity Series Class is 1.23 times less risky than Heartland Value. It trades about -0.11 of its potential returns per unit of risk. Heartland Value Plus is currently generating about -0.11 per unit of risk. If you would invest  1,486  in Equity Series Class on December 21, 2024 and sell it today you would lose (94.00) from holding Equity Series Class or give up 6.33% of portfolio value over 90 days.

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

Equity Series Class  vs.  Heartland Value Plus

Equity Series Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Series Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Heartland Value Plus

Risk-Adjusted Performance

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 latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Equity Series and Heartland Value

The main advantage of trading using opposite Equity Series and Heartland Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Series 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 Equity Series Class 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.