Correlation Between Heartland Value and Kinetics Small

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

Diversification Opportunities for Heartland Value and Kinetics Small

0.1

Correlation Coefficient

Heartland Value  Kinetics Small

Average diversification

The 3 months correlation between Heartland and Kinetics is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap 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 Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Heartland Value i.e., Heartland Value and Kinetics Small go up and down completely randomly.

Pair Corralation between Heartland Value and Kinetics Small

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the Kinetics Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Heartland Value Plus is 1.82 times less risky than Kinetics Small. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Kinetics Small Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  18,198  in Kinetics Small Cap on December 24, 2024 and sell it today you would earn a total of  546.00  from holding Kinetics Small Cap or generate 3.0% 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.  Kinetics Small Cap

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.

Kinetics Small Cap

Risk-Adjusted Performance

Insignificant

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

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

The idea behind Heartland Value Plus and Kinetics Small Cap 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .