Correlation Between HUMANA and McDonalds

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

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

Diversification Opportunities for HUMANA and McDonalds

0.32

Correlation Coefficient

HUMANA  McDonalds

Weak diversification

The 3 months correlation between HUMANA and McDonalds is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds 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 McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of HUMANA i.e., HUMANA and McDonalds go up and down completely randomly.

Pair Corralation between HUMANA and McDonalds

Assuming the 90 days trading horizon HUMANA INC is expected to generate 80.23 times more return on investment than McDonalds. However, HUMANA is 80.23 times more volatile than McDonalds. It trades about 0.07 of its potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of risk. If you would invest  8,183  in HUMANA INC on January 25, 2024 and sell it today you would lose (87.00) from holding HUMANA INC or give up 1.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.09%
Values	Daily Returns

HUMANA INC  vs.  McDonalds

HUMANA INC

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HUMANA INC are ranked lower than 1 (%) 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.

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HUMANA and McDonalds

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

The idea behind HUMANA INC and McDonalds 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 CEOs Directory module to screen CEOs from public companies around the world.