Correlation Between Heartland Value and Financial Services

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

Diversification Opportunities for Heartland Value and Financial Services

0.94

Correlation Coefficient

Heartland Value  Financial Services

Almost no diversification

The 3 months correlation between Heartland and Financial is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services 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 Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Heartland Value i.e., Heartland Value and Financial Services go up and down completely randomly.

Pair Corralation between Heartland Value and Financial Services

Assuming the 90 days horizon Heartland Value Plus is expected to under-perform the Financial Services. In addition to that, Heartland Value is 1.18 times more volatile than Financial Services Fund. It trades about -0.29 of its total potential returns per unit of risk. Financial Services Fund is currently generating about -0.34 per unit of volatility. If you would invest  8,831  in Financial Services Fund on September 22, 2024 and sell it today you would lose (619.00) from holding Financial Services Fund or give up 7.01% of portfolio value over 90 days.

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

Heartland Value Plus  vs.  Financial Services 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.

Financial Services

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Financial Services 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 Financial Services

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

The idea behind Heartland Value Plus and Financial Services 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.