Correlation Between DaVita HealthCare and Humana

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

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

Diversification Opportunities for DaVita HealthCare and Humana

0.68

Correlation Coefficient

DaVita HealthCare  Humana

Poor diversification

The 3 months correlation between DaVita and Humana is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding DaVita HealthCare Partners and Humana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Humana Inc and DaVita HealthCare 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 DaVita HealthCare Partners 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 DaVita HealthCare i.e., DaVita HealthCare and Humana go up and down completely randomly.

Pair Corralation between DaVita HealthCare and Humana

Considering the 90-day investment horizon DaVita HealthCare Partners is expected to under-perform the Humana. But the stock apears to be less risky and, when comparing its historical volatility, DaVita HealthCare Partners is 1.23 times less risky than Humana. The stock trades about -0.07 of its potential returns per unit of risk. The Humana Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  29,211  in Humana Inc on December 2, 2024 and sell it today you would lose (2,169) from holding Humana Inc or give up 7.43% of portfolio value over 90 days.

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

DaVita HealthCare Partners  vs.  Humana Inc

DaVita HealthCare

Risk-Adjusted Performance

Very Weak

Over the last 90 days DaVita HealthCare Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Humana Inc

Risk-Adjusted Performance

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 very healthy basic indicators, Humana is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with DaVita HealthCare and Humana

The main advantage of trading using opposite DaVita HealthCare and Humana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DaVita HealthCare 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 DaVita HealthCare Partners 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.