Correlation Between HUMANA and New Generation

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

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

Diversification Opportunities for HUMANA and New Generation

0.39

Correlation Coefficient

HUMANA  New Generation

Weak diversification

The 3 months correlation between HUMANA and New is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and New Generation Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Generation Consumer 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 New Generation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Generation Consumer has no effect on the direction of HUMANA i.e., HUMANA and New Generation go up and down completely randomly.

Pair Corralation between HUMANA and New Generation

Assuming the 90 days trading horizon HUMANA is expected to generate 11.96 times less return on investment than New Generation. But when comparing it to its historical volatility, HUMANA INC is 17.66 times less risky than New Generation. It trades about 0.06 of its potential returns per unit of risk. New Generation Consumer is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.11  in New Generation Consumer on October 6, 2024 and sell it today you would lose (0.03) from holding New Generation Consumer or give up 27.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

HUMANA INC  vs.  New Generation Consumer

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.

New Generation Consumer

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with HUMANA and New Generation

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

The idea behind HUMANA INC and New Generation Consumer 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.