Correlation Between Heartland Value and Lkcm Small-mid

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

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

Diversification Opportunities for Heartland Value and Lkcm Small-mid

0.97

Correlation Coefficient

Heartland Value  Lkcm Small-mid

Almost no diversification

The 3 months correlation between Heartland and Lkcm is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Lkcm Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lkcm Small Mid and Heartland Value 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 Heartland Value Plus are associated (or correlated) with Lkcm Small-mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lkcm Small Mid has no effect on the direction of Heartland Value i.e., Heartland Value and Lkcm Small-mid go up and down completely randomly.

Pair Corralation between Heartland Value and Lkcm Small-mid

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the Lkcm Small-mid. In addition to that, Heartland Value is 1.08 times more volatile than Lkcm Small Mid Cap. It trades about -0.11 of its total potential returns per unit of risk. Lkcm Small Mid Cap is currently generating about -0.07 per unit of volatility. If you would invest  1,145  in Lkcm Small Mid Cap on December 29, 2024 and sell it today you would lose (59.00) from holding Lkcm Small Mid Cap or give up 5.15% of portfolio value over 90 days.

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

Heartland Value Plus  vs.  Lkcm Small Mid Cap

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.

Lkcm Small Mid

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Heartland Value and Lkcm Small-mid

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

The idea behind Heartland Value Plus and Lkcm Small Mid Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.