Correlation Between HUMANA and New Focus

Can any of the company-specific risk be diversified away by investing in both HUMANA and New Focus 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 Focus 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 Focus Auto, you can compare the effects of market volatilities on HUMANA and New Focus 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 Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of HUMANA and New Focus.

Diversification Opportunities for HUMANA and New Focus

0.25

Correlation Coefficient

HUMANA  New Focus

Modest diversification

The 3 months correlation between HUMANA and New is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and New Focus Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Focus Auto 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 Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Focus Auto has no effect on the direction of HUMANA i.e., HUMANA and New Focus go up and down completely randomly.

Pair Corralation between HUMANA and New Focus

Assuming the 90 days trading horizon HUMANA INC is expected to generate 0.19 times more return on investment than New Focus. However, HUMANA INC is 5.18 times less risky than New Focus. It trades about 0.03 of its potential returns per unit of risk. New Focus Auto is currently generating about -0.02 per unit of risk. If you would invest  7,961  in HUMANA INC on March 4, 2024 and sell it today you would earn a total of  135.00  from holding HUMANA INC or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

HUMANA INC  vs.  New Focus Auto

HUMANA INC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HUMANA INC are ranked lower than 2 (%) 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 Focus Auto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Focus Auto has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with HUMANA and New Focus

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

The idea behind HUMANA INC and New Focus Auto 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.