Correlation Between Heartland Value and Large Cap

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

Diversification Opportunities for Heartland Value and Large Cap

0.8

Correlation Coefficient

Heartland Value  Large Cap

Very poor diversification

The 3 months correlation between Heartland and Large is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Large Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Fund 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Fund has no effect on the direction of Heartland Value i.e., Heartland Value and Large Cap go up and down completely randomly.

Pair Corralation between Heartland Value and Large Cap

Assuming the 90 days horizon Heartland Value Plus is expected to generate 0.51 times more return on investment than Large Cap. However, Heartland Value Plus is 1.97 times less risky than Large Cap. It trades about -0.53 of its potential returns per unit of risk. Large Cap Fund is currently generating about -0.4 per unit of risk. If you would invest  4,030  in Heartland Value Plus on October 5, 2024 and sell it today you would lose (482.00) from holding Heartland Value Plus or give up 11.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Heartland Value Plus  vs.  Large Cap 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.

Large Cap Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Heartland Value and Large Cap

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

The idea behind Heartland Value Plus and Large Cap 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.