Correlation Between Heartland Value and Ab Discovery

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

Diversification Opportunities for Heartland Value and Ab Discovery

0.98

Correlation Coefficient

Heartland Value  Ab Discovery

Almost no diversification

The 3 months correlation between Heartland and ABYSX is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Value Plus and Ab Discovery Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Discovery Value 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 Ab Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Discovery Value has no effect on the direction of Heartland Value i.e., Heartland Value and Ab Discovery go up and down completely randomly.

Pair Corralation between Heartland Value and Ab Discovery

Assuming the 90 days horizon Heartland Value is expected to generate 1.02 times less return on investment than Ab Discovery. In addition to that, Heartland Value is 1.09 times more volatile than Ab Discovery Value. It trades about 0.14 of its total potential returns per unit of risk. Ab Discovery Value is currently generating about 0.15 per unit of volatility. If you would invest  2,373  in Ab Discovery Value on August 31, 2024 and sell it today you would earn a total of  257.00  from holding Ab Discovery Value or generate 10.83% return on investment over 90 days.

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

Heartland Value Plus  vs.  Ab Discovery Value

Heartland Value Plus

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Heartland Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ab Discovery Value

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Discovery Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ab Discovery may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Heartland Value and Ab Discovery

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

The idea behind Heartland Value Plus and Ab Discovery Value 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.