Correlation Between Large Cap and Heartland Value

Can any of the company-specific risk be diversified away by investing in both Large 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 Large 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 Large Cap Fund and Heartland Value Plus, you can compare the effects of market volatilities on Large 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 Large Cap with a short position of Heartland Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Heartland Value.

Diversification Opportunities for Large Cap and Heartland Value

0.87

Correlation Coefficient

Large Cap  Heartland Value

Very poor diversification

The 3 months correlation between Large and Heartland is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap 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 Large 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 Large Cap 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 Large Cap i.e., Large Cap and Heartland Value go up and down completely randomly.

Pair Corralation between Large Cap and Heartland Value

Assuming the 90 days horizon Large Cap is expected to generate 1.79 times less return on investment than Heartland Value. But when comparing it to its historical volatility, Large Cap Fund is 1.69 times less risky than Heartland Value. It trades about 0.13 of its potential returns per unit of risk. Heartland Value Plus is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,663  in Heartland Value Plus on August 31, 2024 and sell it today you would earn a total of  386.00  from holding Heartland Value Plus or generate 10.54% return on investment over 90 days.

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

Large Cap Fund  vs.  Heartland Value Plus

Large Cap Fund

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Large 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

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Heartland Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Large Cap and Heartland Value

The main advantage of trading using opposite Large Cap and Heartland Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large 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 Large Cap 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.