Correlation Between Enterprise Bancorp and Heartland Financial

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

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

Diversification Opportunities for Enterprise Bancorp and Heartland Financial

0.98

Correlation Coefficient

Enterprise Bancorp  Heartland Financial

Almost no diversification

The 3 months correlation between Enterprise and Heartland is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp 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 Enterprise Bancorp 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 Enterprise Bancorp 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 Enterprise Bancorp i.e., Enterprise Bancorp and Heartland Financial go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and Heartland Financial

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 1.02 times more return on investment than Heartland Financial. However, Enterprise Bancorp is 1.02 times more volatile than Heartland Financial USA. It trades about 0.19 of its potential returns per unit of risk. Heartland Financial USA is currently generating about 0.18 per unit of risk. If you would invest  3,192  in Enterprise Bancorp on August 31, 2024 and sell it today you would earn a total of  451.00  from holding Enterprise Bancorp or generate 14.13% return on investment over 90 days.

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

Enterprise Bancorp  vs.  Heartland Financial USA

Enterprise Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Enterprise Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Heartland Financial USA

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Financial USA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Heartland Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enterprise Bancorp and Heartland Financial

The main advantage of trading using opposite Enterprise Bancorp and Heartland Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise Bancorp 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 Enterprise Bancorp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.