Correlation Between Heartland Value and Smallcap World

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

Diversification Opportunities for Heartland Value and Smallcap World

0.9

Correlation Coefficient

Heartland Value  Smallcap World

Almost no diversification

The 3 months correlation between Heartland and Smallcap is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World 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 Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Heartland Value i.e., Heartland Value and Smallcap World go up and down completely randomly.

Pair Corralation between Heartland Value and Smallcap World

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the Smallcap World. In addition to that, Heartland Value is 1.28 times more volatile than Smallcap World Fund. It trades about -0.01 of its total potential returns per unit of risk. Smallcap World Fund is currently generating about 0.03 per unit of volatility. If you would invest  6,257  in Smallcap World Fund on October 25, 2024 and sell it today you would earn a total of  763.00  from holding Smallcap World Fund or generate 12.19% 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.  Smallcap World Fund

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.

Smallcap World

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Smallcap World 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 Smallcap World

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

The idea behind Heartland Value Plus and Smallcap World 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.