Correlation Between Skandinaviska Enskilda and Heartland Financial

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

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

Diversification Opportunities for Skandinaviska Enskilda and Heartland Financial

-0.7

Correlation Coefficient

Skandinaviska Enskilda  Heartland Financial

Excellent diversification

The 3 months correlation between Skandinaviska and Heartland is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Skandinaviska Enskilda Banken 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 Skandinaviska Enskilda 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 Skandinaviska Enskilda Banken 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 Skandinaviska Enskilda i.e., Skandinaviska Enskilda and Heartland Financial go up and down completely randomly.

Pair Corralation between Skandinaviska Enskilda and Heartland Financial

Assuming the 90 days trading horizon Skandinaviska Enskilda Banken is expected to under-perform the Heartland Financial. But the stock apears to be less risky and, when comparing its historical volatility, Skandinaviska Enskilda Banken is 1.74 times less risky than Heartland Financial. The stock trades about -0.05 of its potential returns per unit of risk. The 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Skandinaviska Enskilda Banken  vs.  Heartland Financial USA

Skandinaviska Enskilda

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Skandinaviska Enskilda Banken has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Skandinaviska Enskilda is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Skandinaviska Enskilda and Heartland Financial

The main advantage of trading using opposite Skandinaviska Enskilda and Heartland Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Skandinaviska Enskilda 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 Skandinaviska Enskilda Banken 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.