Correlation Between Heartland Value and Third Avenue

Can any of the company-specific risk be diversified away by investing in both Heartland Value and Third Avenue 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 Third Avenue 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 Third Avenue Value, you can compare the effects of market volatilities on Heartland Value and Third Avenue 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 Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heartland Value and Third Avenue.

Diversification Opportunities for Heartland Value and Third Avenue

-0.4

Correlation Coefficient

Heartland Value  Third Avenue

Very good diversification

The 3 months correlation between Heartland and Third is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Fund and Third Avenue Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Value 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 Third Avenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Avenue Value has no effect on the direction of Heartland Value i.e., Heartland Value and Third Avenue go up and down completely randomly.

Pair Corralation between Heartland Value and Third Avenue

Assuming the 90 days horizon Heartland Value Fund is expected to under-perform the Third Avenue. In addition to that, Heartland Value is 1.05 times more volatile than Third Avenue Value. It trades about -0.07 of its total potential returns per unit of risk. Third Avenue Value is currently generating about 0.07 per unit of volatility. If you would invest  5,751  in Third Avenue Value on December 30, 2024 and sell it today you would earn a total of  269.00  from holding Third Avenue Value or generate 4.68% return on investment over 90 days.

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

Heartland Value Fund  vs.  Third Avenue Value

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.

Third Avenue Value

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Value are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Third Avenue 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 Third Avenue

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

The idea behind Heartland Value Fund and Third Avenue Value 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.