Correlation Between Heartland Value and Dearborn Partners

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

Diversification Opportunities for Heartland Value and Dearborn Partners

0.15

Correlation Coefficient

Heartland Value  Dearborn Partners

Average diversification

The 3 months correlation between Heartland and Dearborn is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Dearborn Partners Rising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dearborn Partners Rising 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 Dearborn Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dearborn Partners Rising has no effect on the direction of Heartland Value i.e., Heartland Value and Dearborn Partners go up and down completely randomly.

Pair Corralation between Heartland Value and Dearborn Partners

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the Dearborn Partners. In addition to that, Heartland Value is 1.57 times more volatile than Dearborn Partners Rising. It trades about -0.11 of its total potential returns per unit of risk. Dearborn Partners Rising is currently generating about 0.01 per unit of volatility. If you would invest  2,522  in Dearborn Partners Rising on December 23, 2024 and sell it today you would earn a total of  4.00  from holding Dearborn Partners Rising or generate 0.16% return on investment over 90 days.

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

Heartland Value Plus  vs.  Dearborn Partners Rising

Heartland Value Plus

Risk-Adjusted Performance

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 latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Dearborn Partners Rising

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dearborn Partners Rising has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Dearborn Partners 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 Dearborn Partners

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

The idea behind Heartland Value Plus and Dearborn Partners Rising 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.