Correlation Between International Equity and Heartland Value

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

By analyzing existing cross correlation between International Equity Portfolio and Heartland Value Plus, you can compare the effects of market volatilities on International Equity 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 International Equity with a short position of Heartland Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Heartland Value.

Diversification Opportunities for International Equity and Heartland Value

-0.73

Correlation Coefficient

International Equity  Heartland Value

Pay attention - limited upside

The 3 months correlation between International and Heartland is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio 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 International Equity 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 International Equity Portfolio 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 International Equity i.e., International Equity and Heartland Value go up and down completely randomly.

Pair Corralation between International Equity and Heartland Value

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Heartland Value. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Equity Portfolio is 1.28 times less risky than Heartland Value. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Heartland Value Plus is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,714  in Heartland Value Plus on September 17, 2024 and sell it today you would earn a total of  208.00  from holding Heartland Value Plus or generate 5.6% return on investment over 90 days.

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

International Equity Portfolio  vs.  Heartland Value Plus

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, International Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with International Equity and Heartland Value

The main advantage of trading using opposite International Equity and Heartland Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity 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.

The idea behind International Equity Portfolio and Heartland Value Plus 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.