Correlation Between Microsoft and Heartland Financial

Can any of the company-specific risk be diversified away by investing in both Microsoft and Heartland Financial 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 Microsoft and Heartland Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Heartland Financial USA, you can compare the effects of market volatilities on Microsoft and Heartland Financial 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 Microsoft with a short position of Heartland Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Heartland Financial.

Diversification Opportunities for Microsoft and Heartland Financial

0.03

Correlation Coefficient

Microsoft  Heartland Financial

Significant diversification

The 3 months correlation between Microsoft and Heartland is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Heartland Financial USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Financial USA and Microsoft 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 Microsoft are associated (or correlated) with Heartland Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Financial USA has no effect on the direction of Microsoft i.e., Microsoft and Heartland Financial go up and down completely randomly.

Pair Corralation between Microsoft and Heartland Financial

Given the investment horizon of 90 days Microsoft is expected to generate 6.26 times less return on investment than Heartland Financial. But when comparing it to its historical volatility, Microsoft is 1.77 times less risky than Heartland Financial. It trades about 0.05 of its potential returns per unit of risk. Heartland Financial USA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,976  in Heartland Financial USA on September 3, 2024 and sell it today you would earn a total of  1,374  from holding Heartland Financial USA or generate 27.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Microsoft  vs.  Heartland Financial USA

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Heartland Financial USA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Financial USA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Heartland Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Heartland Financial

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

The idea behind Microsoft and Heartland Financial USA 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.