Correlation Between GM and Humana

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

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

Diversification Opportunities for GM and Humana

0.33

Correlation Coefficient

GM  Humana

Weak diversification

The 3 months correlation between GM and Humana is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Humana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Humana Inc and GM 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 General Motors 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 GM i.e., GM and Humana go up and down completely randomly.

Pair Corralation between GM and Humana

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Humana. In addition to that, GM is 1.22 times more volatile than Humana Inc. It trades about -0.13 of its total potential returns per unit of risk. Humana Inc is currently generating about -0.02 per unit of volatility. If you would invest  26,380  in Humana Inc on September 16, 2024 and sell it today you would lose (390.00) from holding Humana Inc or give up 1.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Humana Inc

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

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 nearly stable basic indicators, Humana is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Humana

The main advantage of trading using opposite GM and Humana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.