Correlation Between HUMANA and First Trust

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

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

Diversification Opportunities for HUMANA and First Trust

0.59

Correlation Coefficient

HUMANA  First Trust

Very weak diversification

The 3 months correlation between HUMANA and First is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Mid has no effect on the direction of HUMANA i.e., HUMANA and First Trust go up and down completely randomly.

Pair Corralation between HUMANA and First Trust

Assuming the 90 days trading horizon HUMANA INC is expected to under-perform the First Trust. But the bond apears to be less risky and, when comparing its historical volatility, HUMANA INC is 1.71 times less risky than First Trust. The bond trades about -0.01 of its potential returns per unit of risk. The First Trust Mid is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,073  in First Trust Mid on December 2, 2024 and sell it today you would earn a total of  187.00  from holding First Trust Mid or generate 3.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.79%
Values	Daily Returns

HUMANA INC  vs.  First Trust Mid

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.

First Trust Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Mid has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with HUMANA and First Trust

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

The idea behind HUMANA INC and First Trust Mid 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.