Correlation Between Heartland Value and Equity Growth

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

Diversification Opportunities for Heartland Value and Equity Growth

0.3

Correlation Coefficient

Heartland Value  Equity Growth

Weak diversification

The 3 months correlation between Heartland and Equity is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity 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 Plus are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Heartland Value i.e., Heartland Value and Equity Growth go up and down completely randomly.

Pair Corralation between Heartland Value and Equity Growth

Assuming the 90 days horizon Heartland Value is expected to generate 8.25 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Heartland Value Plus is 1.15 times less risky than Equity Growth. It trades about 0.02 of its potential returns per unit of risk. The Equity Growth is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,430  in The Equity Growth on October 24, 2024 and sell it today you would earn a total of  370.00  from holding The Equity Growth or generate 15.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Heartland Value Plus  vs.  The Equity Growth

Heartland Value Plus

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Heartland Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Equity Growth are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Equity Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heartland Value and Equity Growth

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

The idea behind Heartland Value Plus and The Equity Growth 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.