Correlation Between Northwest Bancshares and HUMANA

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

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

Diversification Opportunities for Northwest Bancshares and HUMANA

0.53

Correlation Coefficient

Northwest Bancshares  HUMANA

Very weak diversification

The 3 months correlation between Northwest and HUMANA is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Bancshares and HUMANA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUMANA INC and Northwest Bancshares 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 Northwest Bancshares 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 Northwest Bancshares i.e., Northwest Bancshares and HUMANA go up and down completely randomly.

Pair Corralation between Northwest Bancshares and HUMANA

Given the investment horizon of 90 days Northwest Bancshares is expected to generate 1.12 times more return on investment than HUMANA. However, Northwest Bancshares is 1.12 times more volatile than HUMANA INC. It trades about -0.1 of its potential returns per unit of risk. HUMANA INC is currently generating about -0.24 per unit of risk. If you would invest  1,380  in Northwest Bancshares on June 24, 2024 and sell it today you would lose (37.00) from holding Northwest Bancshares or give up 2.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Northwest Bancshares  vs.  HUMANA INC

Northwest Bancshares

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Bancshares are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Northwest Bancshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with Northwest Bancshares and HUMANA

The main advantage of trading using opposite Northwest Bancshares and HUMANA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Bancshares 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 Northwest Bancshares 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.