Correlation Between Heartland Value and American Funds

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

Diversification Opportunities for Heartland Value and American Funds

0.65

Correlation Coefficient

Heartland Value  American Funds

Poor diversification

The 3 months correlation between Heartland and American is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and American Funds Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Balanced 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Balanced has no effect on the direction of Heartland Value i.e., Heartland Value and American Funds go up and down completely randomly.

Pair Corralation between Heartland Value and American Funds

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the American Funds. In addition to that, Heartland Value is 2.14 times more volatile than American Funds Balanced. It trades about 0.0 of its total potential returns per unit of risk. American Funds Balanced is currently generating about 0.07 per unit of volatility. If you would invest  1,507  in American Funds Balanced on October 10, 2024 and sell it today you would earn a total of  304.00  from holding American Funds Balanced or generate 20.17% return on investment over 90 days.

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

Heartland Value Plus  vs.  American Funds Balanced

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.

American Funds Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, American Funds 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 American Funds

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

The idea behind Heartland Value Plus and American Funds Balanced 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.