Correlation Between Heartland Value and Smallcap Growth

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

Diversification Opportunities for Heartland Value and Smallcap Growth

0.87

Correlation Coefficient

Heartland Value  Smallcap Growth

Very poor diversification

The 3 months correlation between Heartland and Smallcap is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Growth 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 Smallcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of Heartland Value i.e., Heartland Value and Smallcap Growth go up and down completely randomly.

Pair Corralation between Heartland Value and Smallcap Growth

Assuming the 90 days horizon Heartland Value is expected to generate 1.21 times less return on investment than Smallcap Growth. In addition to that, Heartland Value is 1.11 times more volatile than Smallcap Growth Fund. It trades about 0.16 of its total potential returns per unit of risk. Smallcap Growth Fund is currently generating about 0.21 per unit of volatility. If you would invest  1,593  in Smallcap Growth Fund on August 25, 2024 and sell it today you would earn a total of  114.00  from holding Smallcap Growth Fund or generate 7.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Heartland Value Plus  vs.  Smallcap Growth Fund

Heartland Value Plus

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Smallcap Growth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Growth may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Heartland Value and Smallcap Growth

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

The idea behind Heartland Value Plus and Smallcap Growth 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.