Correlation Between Humana and Establishment Labs

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

By analyzing existing cross correlation between Humana Inc and Establishment Labs Holdings, you can compare the effects of market volatilities on Humana and Establishment Labs 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 Establishment Labs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Humana and Establishment Labs.

Diversification Opportunities for Humana and Establishment Labs

-0.29

Correlation Coefficient

Humana  Establishment Labs

Very good diversification

The 3 months correlation between Humana and Establishment is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Humana Inc and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs 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 Establishment Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Establishment Labs has no effect on the direction of Humana i.e., Humana and Establishment Labs go up and down completely randomly.

Pair Corralation between Humana and Establishment Labs

Considering the 90-day investment horizon Humana is expected to generate 31.94 times less return on investment than Establishment Labs. But when comparing it to its historical volatility, Humana Inc is 1.93 times less risky than Establishment Labs. It trades about 0.01 of its potential returns per unit of risk. Establishment Labs Holdings is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,846  in Establishment Labs Holdings on February 28, 2024 and sell it today you would earn a total of  1,508  from holding Establishment Labs Holdings or generate 39.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Humana Inc  vs.  Establishment Labs Holdings

Humana Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Humana Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Humana is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Establishment Labs

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Humana and Establishment Labs

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

The idea behind Humana Inc and Establishment Labs Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.