Correlation Between HUMANA and Vanguard Developed

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

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

Diversification Opportunities for HUMANA and Vanguard Developed

0.42

Correlation Coefficient

HUMANA  Vanguard Developed

Very weak diversification

The 3 months correlation between HUMANA and Vanguard is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and Vanguard Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Developed 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 Vanguard Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Developed has no effect on the direction of HUMANA i.e., HUMANA and Vanguard Developed go up and down completely randomly.

Pair Corralation between HUMANA and Vanguard Developed

Assuming the 90 days trading horizon HUMANA INC is expected to under-perform the Vanguard Developed. In addition to that, HUMANA is 1.15 times more volatile than Vanguard Developed Markets. It trades about -0.07 of its total potential returns per unit of risk. Vanguard Developed Markets is currently generating about 0.1 per unit of volatility. If you would invest  1,592  in Vanguard Developed Markets on November 29, 2024 and sell it today you would earn a total of  70.00  from holding Vanguard Developed Markets or generate 4.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

HUMANA INC  vs.  Vanguard Developed Markets

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.

Vanguard Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Developed Markets are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Developed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HUMANA and Vanguard Developed

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

The idea behind HUMANA INC and Vanguard Developed Markets 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.