Correlation Between Humana and Molina Healthcare

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

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

Diversification Opportunities for Humana and Molina Healthcare

0.24

Correlation Coefficient

Humana  Molina Healthcare

Modest diversification

The 3 months correlation between Humana and Molina is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Humana Inc and Molina Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Molina Healthcare 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 Molina Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Molina Healthcare has no effect on the direction of Humana i.e., Humana and Molina Healthcare go up and down completely randomly.

Pair Corralation between Humana and Molina Healthcare

Considering the 90-day investment horizon Humana is expected to generate 1.72 times less return on investment than Molina Healthcare. But when comparing it to its historical volatility, Humana Inc is 1.3 times less risky than Molina Healthcare. It trades about 0.06 of its potential returns per unit of risk. Molina Healthcare is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  28,938  in Molina Healthcare on December 28, 2024 and sell it today you would earn a total of  3,409  from holding Molina Healthcare or generate 11.78% return on investment over 90 days.

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

Humana Inc  vs.  Molina Healthcare

Humana Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Humana Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Humana may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Molina Healthcare

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Molina Healthcare are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Molina Healthcare demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Humana and Molina Healthcare

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

The idea behind Humana Inc and Molina Healthcare 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.