Correlation Between HUMANA and China Resources

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

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

Diversification Opportunities for HUMANA and China Resources

0.35

Correlation Coefficient

HUMANA  China Resources

Weak diversification

The 3 months correlation between HUMANA and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and China Resources Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Land 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 China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Land has no effect on the direction of HUMANA i.e., HUMANA and China Resources go up and down completely randomly.

Pair Corralation between HUMANA and China Resources

Assuming the 90 days trading horizon HUMANA INC is expected to generate 1.2 times more return on investment than China Resources. However, HUMANA is 1.2 times more volatile than China Resources Land. It trades about -0.07 of its potential returns per unit of risk. China Resources Land is currently generating about -0.23 per unit of risk. If you would invest  8,195  in HUMANA INC on November 29, 2024 and sell it today you would lose (296.00) from holding HUMANA INC or give up 3.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.97%
Values	Daily Returns

HUMANA INC  vs.  China Resources Land

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 latest stock price disturbance, may contribute to short-term losses for the investors.

China Resources Land

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Resources Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with HUMANA and China Resources

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

The idea behind HUMANA INC and China Resources Land 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.