Correlation Between Heartland Value and Small Cap

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

Diversification Opportunities for Heartland Value and Small Cap

0.87

Correlation Coefficient

Heartland Value  Small Cap

Very poor diversification

The 3 months correlation between Heartland and Small is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap 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 Plus are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Heartland Value i.e., Heartland Value and Small Cap go up and down completely randomly.

Pair Corralation between Heartland Value and Small Cap

Assuming the 90 days horizon Heartland Value is expected to generate 7.09 times less return on investment than Small Cap. But when comparing it to its historical volatility, Heartland Value Plus is 1.18 times less risky than Small Cap. It trades about 0.0 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,342  in Small Cap Value Fund on September 26, 2024 and sell it today you would earn a total of  425.00  from holding Small Cap Value Fund or generate 12.72% return on investment over 90 days.

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

Heartland Value Plus  vs.  Small Cap Value Fund

Heartland Value Plus

Risk-Adjusted Performance

0 of 100

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 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.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small Cap 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 Small Cap

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

The idea behind Heartland Value Plus and Small Cap Value 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.