Correlation Between Heartland Financial and Bancorp

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

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

Diversification Opportunities for Heartland Financial and Bancorp

0.65

Correlation Coefficient

Heartland Financial  Bancorp

Poor diversification

The 3 months correlation between Heartland and Bancorp is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Financial USA and The Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancorp and Heartland Financial 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 Financial USA are associated (or correlated) with Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancorp has no effect on the direction of Heartland Financial i.e., Heartland Financial and Bancorp go up and down completely randomly.

Pair Corralation between Heartland Financial and Bancorp

Given the investment horizon of 90 days Heartland Financial USA is expected to generate 0.66 times more return on investment than Bancorp. However, Heartland Financial USA is 1.52 times less risky than Bancorp. It trades about 0.15 of its potential returns per unit of risk. The Bancorp is currently generating about 0.09 per unit of risk. If you would invest  5,460  in Heartland Financial USA on September 12, 2024 and sell it today you would earn a total of  1,337  from holding Heartland Financial USA or generate 24.49% return on investment over 90 days.

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

Heartland Financial USA  vs.  The Bancorp

Heartland Financial USA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Financial USA are ranked lower than 12 (%) 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.

Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heartland Financial and Bancorp

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

The idea behind Heartland Financial USA and The Bancorp 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.