Correlation Between Heartland Value and American Beacon

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

Diversification Opportunities for Heartland Value and American Beacon

0.91

Correlation Coefficient

Heartland Value  American Beacon

Almost no diversification

The 3 months correlation between Heartland and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and American Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ark 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Ark has no effect on the direction of Heartland Value i.e., Heartland Value and American Beacon go up and down completely randomly.

Pair Corralation between Heartland Value and American Beacon

Assuming the 90 days horizon Heartland Value is expected to generate 3.99 times less return on investment than American Beacon. But when comparing it to its historical volatility, Heartland Value Plus is 1.93 times less risky than American Beacon. It trades about 0.1 of its potential returns per unit of risk. American Beacon Ark is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,223  in American Beacon Ark on September 14, 2024 and sell it today you would earn a total of  405.00  from holding American Beacon Ark or generate 33.12% return on investment over 90 days.

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

Heartland Value Plus  vs.  American Beacon Ark

Heartland Value Plus

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 8 (%) 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 January 2025.

American Beacon Ark

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Ark are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heartland Value and American Beacon

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

The idea behind Heartland Value Plus and American Beacon Ark 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.

Check out your portfolio center.

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.