Correlation Between Humana and Yum Brands

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

By analyzing existing cross correlation between Humana Inc and Yum Brands, you can compare the effects of market volatilities on Humana and Yum Brands 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 Humana with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Humana and Yum Brands.

Diversification Opportunities for Humana and Yum Brands

-0.09

Correlation Coefficient

Humana  Yum Brands

Good diversification

The 3 months correlation between Humana and Yum is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Humana Inc and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Humana 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 Humana Inc are associated (or correlated) with Yum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum Brands has no effect on the direction of Humana i.e., Humana and Yum Brands go up and down completely randomly.

Pair Corralation between Humana and Yum Brands

Assuming the 90 days trading horizon Humana Inc is expected to under-perform the Yum Brands. But the stock apears to be less risky and, when comparing its historical volatility, Humana Inc is 2.88 times less risky than Yum Brands. The stock trades about -0.04 of its potential returns per unit of risk. The Yum Brands is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  13,775  in Yum Brands on September 1, 2024 and sell it today you would earn a total of  143.00  from holding Yum Brands or generate 1.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.24%
Values	Daily Returns

Humana Inc  vs.  Yum Brands

Humana Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Humana Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Yum Brands

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Yum Brands is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Humana and Yum Brands

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

The idea behind Humana Inc and Yum Brands 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.