Correlation Between HUMANA and CMC Metals

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

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

Diversification Opportunities for HUMANA and CMC Metals

0.09

Correlation Coefficient

HUMANA  CMC Metals

Significant diversification

The 3 months correlation between HUMANA and CMC is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and CMC Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Metals 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 CMC Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Metals has no effect on the direction of HUMANA i.e., HUMANA and CMC Metals go up and down completely randomly.

Pair Corralation between HUMANA and CMC Metals

Assuming the 90 days trading horizon HUMANA is expected to generate 14.72 times less return on investment than CMC Metals. But when comparing it to its historical volatility, HUMANA INC is 20.2 times less risky than CMC Metals. It trades about 0.06 of its potential returns per unit of risk. CMC Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1.55  in CMC Metals on December 31, 2024 and sell it today you would lose (0.37) from holding CMC Metals or give up 23.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	79.37%
Values	Daily Returns

HUMANA INC  vs.  CMC Metals

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. Despite somewhat strong basic indicators, HUMANA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

CMC Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CMC Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HUMANA and CMC Metals

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

The idea behind HUMANA INC and CMC Metals 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.