Correlation Between HUMANA and CEA Industries

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

By analyzing existing cross correlation between HUMANA INC and CEA Industries, you can compare the effects of market volatilities on HUMANA and CEA Industries 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 CEA Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of HUMANA and CEA Industries.

Diversification Opportunities for HUMANA and CEA Industries

-0.29

Correlation Coefficient

HUMANA  CEA Industries

Very good diversification

The 3 months correlation between HUMANA and CEA is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and CEA Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries 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 CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries has no effect on the direction of HUMANA i.e., HUMANA and CEA Industries go up and down completely randomly.

Pair Corralation between HUMANA and CEA Industries

Assuming the 90 days trading horizon HUMANA is expected to generate 1.88 times less return on investment than CEA Industries. But when comparing it to its historical volatility, HUMANA INC is 2.31 times less risky than CEA Industries. It trades about 0.09 of its potential returns per unit of risk. CEA Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  761.00  in CEA Industries on October 5, 2024 and sell it today you would earn a total of  27.00  from holding CEA Industries or generate 3.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

HUMANA INC  vs.  CEA Industries

HUMANA INC

Risk-Adjusted Performance

4 of 100

Very Weak

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. 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.

CEA Industries

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with HUMANA and CEA Industries

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

The idea behind HUMANA INC and CEA Industries 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.