Correlation Between HUMANA and Diamond Hill

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

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

Diversification Opportunities for HUMANA and Diamond Hill

0.24

Correlation Coefficient

HUMANA  Diamond Hill

Modest diversification

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

Pair Corralation between HUMANA and Diamond Hill

Assuming the 90 days trading horizon HUMANA INC is expected to generate 1.02 times more return on investment than Diamond Hill. However, HUMANA is 1.02 times more volatile than Diamond Hill Long Short. It trades about 0.04 of its potential returns per unit of risk. Diamond Hill Long Short is currently generating about 0.01 per unit of risk. If you would invest  7,937  in HUMANA INC on October 5, 2024 and sell it today you would earn a total of  507.00  from holding HUMANA INC or generate 6.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.75%
Values	Daily Returns

HUMANA INC  vs.  Diamond Hill Long Short

HUMANA INC

Risk-Adjusted Performance

4 of 100

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

Diamond Hill Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Long Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with HUMANA and Diamond Hill

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

The idea behind HUMANA INC and Diamond Hill Long Short 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.