Correlation Between California Municipal and HUMANA

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

By analyzing existing cross correlation between California Municipal Portfolio and HUMANA INC, you can compare the effects of market volatilities on California Municipal and HUMANA 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 California Municipal with a short position of HUMANA. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Municipal and HUMANA.

Diversification Opportunities for California Municipal and HUMANA

0.03

Correlation Coefficient

California Municipal  HUMANA

Significant diversification

The 3 months correlation between California and HUMANA is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding California Municipal Portfolio and HUMANA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUMANA INC and California Municipal 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 California Municipal Portfolio are associated (or correlated) with HUMANA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUMANA INC has no effect on the direction of California Municipal i.e., California Municipal and HUMANA go up and down completely randomly.

Pair Corralation between California Municipal and HUMANA

Assuming the 90 days horizon California Municipal Portfolio is expected to generate 0.26 times more return on investment than HUMANA. However, California Municipal Portfolio is 3.91 times less risky than HUMANA. It trades about -0.36 of its potential returns per unit of risk. HUMANA INC is currently generating about -0.16 per unit of risk. If you would invest  1,401  in California Municipal Portfolio on October 7, 2024 and sell it today you would lose (17.00) from holding California Municipal Portfolio or give up 1.21% of portfolio value over 90 days.

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

California Municipal Portfolio  vs.  HUMANA INC

California Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

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. Despite somewhat strong basic indicators, HUMANA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Municipal and HUMANA

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

The idea behind California Municipal Portfolio and HUMANA INC 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.