Correlation Between Heartland Value and Rational Special

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

Diversification Opportunities for Heartland Value and Rational Special

-0.8

Correlation Coefficient

Heartland Value  Rational Special

Pay attention - limited upside

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

Pair Corralation between Heartland Value and Rational Special

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the Rational Special. In addition to that, Heartland Value is 14.65 times more volatile than Rational Special Situations. It trades about -0.11 of its total potential returns per unit of risk. Rational Special Situations is currently generating about 0.27 per unit of volatility. If you would invest  1,791  in Rational Special Situations on December 30, 2024 and sell it today you would earn a total of  24.00  from holding Rational Special Situations or generate 1.34% return on investment over 90 days.

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

Heartland Value Plus  vs.  Rational Special Situations

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.

Rational Special Sit

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Special Situations are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Rational Special 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 Rational Special

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

The idea behind Heartland Value Plus and Rational Special Situations 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.