Correlation Between North American and HUMANA

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

By analyzing existing cross correlation between North American Construction and HUMANA INC, you can compare the effects of market volatilities on North American and HUMANA 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 North American with a short position of HUMANA. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and HUMANA.

Diversification Opportunities for North American and HUMANA

0.12

Correlation Coefficient

North American  HUMANA

Average diversification

The 3 months correlation between North and HUMANA is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and HUMANA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUMANA INC and North American 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 North American Construction are associated (or correlated) with HUMANA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUMANA INC has no effect on the direction of North American i.e., North American and HUMANA go up and down completely randomly.

Pair Corralation between North American and HUMANA

Considering the 90-day investment horizon North American Construction is expected to under-perform the HUMANA. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 1.18 times less risky than HUMANA. The stock trades about -0.26 of its potential returns per unit of risk. The HUMANA INC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,927  in HUMANA INC on January 17, 2024 and sell it today you would earn a total of  169.00  from holding HUMANA INC or generate 2.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

North American Construction  vs.  HUMANA INC

North American Const

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, North American is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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. 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.

Pair Trading with North American and HUMANA

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

The idea behind North American Construction and HUMANA INC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.