Correlation Between Heartland Value and Meridian Growth

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

By analyzing existing cross correlation between Heartland Value Fund and Meridian Growth Fund, you can compare the effects of market volatilities on Heartland Value and Meridian Growth 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 Meridian Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heartland Value and Meridian Growth.

Diversification Opportunities for Heartland Value and Meridian Growth

0.98

Correlation Coefficient

Heartland Value  Meridian Growth

Almost no diversification

The 3 months correlation between Heartland and Meridian is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Fund and Meridian Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Growth 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 Fund are associated (or correlated) with Meridian Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Growth has no effect on the direction of Heartland Value i.e., Heartland Value and Meridian Growth go up and down completely randomly.

Pair Corralation between Heartland Value and Meridian Growth

Assuming the 90 days horizon Heartland Value Fund is expected to generate 1.0 times more return on investment than Meridian Growth. However, Heartland Value is 1.0 times more volatile than Meridian Growth Fund. It trades about -0.07 of its potential returns per unit of risk. Meridian Growth Fund is currently generating about -0.11 per unit of risk. If you would invest  4,757  in Heartland Value Fund on December 30, 2024 and sell it today you would lose (249.00) from holding Heartland Value Fund or give up 5.23% 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 Fund  vs.  Meridian Growth Fund

Heartland Value

Risk-Adjusted Performance

Very Weak

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

Meridian Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meridian Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 Heartland Value and Meridian Growth

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

The idea behind Heartland Value Fund and Meridian Growth Fund 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.