Correlation Between HUMANA and Royce Pennsylvania

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

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

Diversification Opportunities for HUMANA and Royce Pennsylvania

0.34

Correlation Coefficient

HUMANA  Royce Pennsylvania

Weak diversification

The 3 months correlation between HUMANA and ROYCE is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and Royce Pennsylvania Mutual in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Pennsylvania Mutual 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 Royce Pennsylvania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Pennsylvania Mutual has no effect on the direction of HUMANA i.e., HUMANA and Royce Pennsylvania go up and down completely randomly.

Pair Corralation between HUMANA and Royce Pennsylvania

Assuming the 90 days trading horizon HUMANA INC is expected to generate 0.59 times more return on investment than Royce Pennsylvania. However, HUMANA INC is 1.7 times less risky than Royce Pennsylvania. It trades about -0.06 of its potential returns per unit of risk. Royce Pennsylvania Mutual is currently generating about -0.21 per unit of risk. If you would invest  8,185  in HUMANA INC on December 2, 2024 and sell it today you would lose (286.00) from holding HUMANA INC or give up 3.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

HUMANA INC  vs.  Royce Pennsylvania Mutual

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

Royce Pennsylvania Mutual

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Pennsylvania Mutual has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with HUMANA and Royce Pennsylvania

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

The idea behind HUMANA INC and Royce Pennsylvania Mutual 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.