Correlation Between Small Cap and HUMANA

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

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

Diversification Opportunities for Small Cap and HUMANA

0.75

Correlation Coefficient

Small Cap  HUMANA

Poor diversification

The 3 months correlation between Small and HUMANA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and HUMANA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUMANA INC and Small Cap 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 Small Cap Core 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 Small Cap i.e., Small Cap and HUMANA go up and down completely randomly.

Pair Corralation between Small Cap and HUMANA

Assuming the 90 days horizon Small Cap Core is expected to under-perform the HUMANA. In addition to that, Small Cap is 2.43 times more volatile than HUMANA INC. It trades about -0.12 of its total potential returns per unit of risk. HUMANA INC is currently generating about -0.04 per unit of volatility. If you would invest  8,058  in HUMANA INC on November 20, 2024 and sell it today you would lose (159.00) from holding HUMANA INC or give up 1.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.72%
Values	Daily Returns

Small Cap Core  vs.  HUMANA INC

Small Cap Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund 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. 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 Small Cap and HUMANA

The main advantage of trading using opposite Small Cap and HUMANA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Core 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.