Correlation Between Large Cap and Heartland Value
Can any of the company-specific risk be diversified away by investing in both Large Cap and Heartland Value 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 Large Cap and Heartland Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Fund and Heartland Value Plus, you can compare the effects of market volatilities on Large Cap and Heartland Value 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 Large Cap with a short position of Heartland Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Heartland Value.
Diversification Opportunities for Large Cap and Heartland Value
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Large and Heartland is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Heartland Value Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Value Plus and Large Cap 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 Large Cap Fund are associated (or correlated) with Heartland Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Value Plus has no effect on the direction of Large Cap i.e., Large Cap and Heartland Value go up and down completely randomly.
Pair Corralation between Large Cap and Heartland Value
Assuming the 90 days horizon Large Cap Fund is expected to under-perform the Heartland Value. In addition to that, Large Cap is 1.53 times more volatile than Heartland Value Plus. It trades about -0.18 of its total potential returns per unit of risk. Heartland Value Plus is currently generating about -0.08 per unit of volatility. If you would invest 3,859 in Heartland Value Plus on October 20, 2024 and sell it today you would lose (161.00) from holding Heartland Value Plus or give up 4.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Fund vs. Heartland Value Plus
Performance |
| Timeline |
| Large Cap Fund |
| Heartland Value Plus |
Large Cap and Heartland Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Heartland Value
The main advantage of trading using opposite Large Cap and Heartland Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Heartland Value 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 Value will offset losses from the drop in Heartland Value's long position.| Large Cap vs. Wasatch Large Cap | Large Cap vs. Loomis Sayles Bond | Large Cap vs. Harbor International Fund | Large Cap vs. Equity Series Class |
| Heartland Value vs. Heartland Value Fund | Heartland Value vs. Large Cap Fund | Heartland Value vs. Amg Yacktman Fund | Heartland Value vs. Wasatch Large Cap |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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