Correlation Between FirstGroup Plc and Heartland Express

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

By analyzing existing cross correlation between FirstGroup plc and Heartland Express, you can compare the effects of market volatilities on FirstGroup Plc and Heartland Express 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 FirstGroup Plc with a short position of Heartland Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of FirstGroup Plc and Heartland Express.

Diversification Opportunities for FirstGroup Plc and Heartland Express

0.45

Correlation Coefficient

FirstGroup Plc  Heartland Express

Very weak diversification

The 3 months correlation between FirstGroup and Heartland is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding FirstGroup plc and Heartland Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Express and FirstGroup Plc 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 FirstGroup plc are associated (or correlated) with Heartland Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Express has no effect on the direction of FirstGroup Plc i.e., FirstGroup Plc and Heartland Express go up and down completely randomly.

Pair Corralation between FirstGroup Plc and Heartland Express

Assuming the 90 days horizon FirstGroup plc is expected to generate 0.95 times more return on investment than Heartland Express. However, FirstGroup plc is 1.05 times less risky than Heartland Express. It trades about 0.16 of its potential returns per unit of risk. Heartland Express is currently generating about 0.04 per unit of risk. If you would invest  164.00  in FirstGroup plc on October 7, 2024 and sell it today you would earn a total of  30.00  from holding FirstGroup plc or generate 18.29% return on investment over 90 days.

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

FirstGroup plc  vs.  Heartland Express

FirstGroup plc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FirstGroup plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FirstGroup Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Heartland Express

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Express are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Heartland Express is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FirstGroup Plc and Heartland Express

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

The idea behind FirstGroup plc and Heartland Express 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.