Correlation Between Heartland Value and Financials Ultrasector

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

Diversification Opportunities for Heartland Value and Financials Ultrasector

0.93

Correlation Coefficient

Heartland Value  Financials Ultrasector

Almost no diversification

The 3 months correlation between Heartland and Financials is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector 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 Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Heartland Value i.e., Heartland Value and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Heartland Value and Financials Ultrasector

Assuming the 90 days horizon Heartland Value is expected to generate 1.66 times less return on investment than Financials Ultrasector. But when comparing it to its historical volatility, Heartland Value Plus is 1.39 times less risky than Financials Ultrasector. It trades about 0.15 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,893  in Financials Ultrasector Profund on September 4, 2024 and sell it today you would earn a total of  737.00  from holding Financials Ultrasector Profund or generate 18.93% 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.  Financials Ultrasector Profund

Heartland Value Plus

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Heartland Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Financials Ultrasector

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heartland Value and Financials Ultrasector

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

The idea behind Heartland Value Plus and Financials Ultrasector Profund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.