Can any of the company-specific risk be diversified away by investing in both HUMANA and Midcap Fund 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 Midcap Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HUMANA INC and Midcap Fund Class, you can compare the effects of market volatilities on HUMANA and Midcap Fund 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 Midcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of HUMANA and Midcap Fund.
Diversification Opportunities for HUMANA and Midcap Fund
The 3 months correlation between HUMANA and Midcap is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding HUMANA INC and Midcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund Class 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 Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund Class has no effect on the direction of HUMANA i.e., HUMANA and Midcap Fund go up and down completely randomly.
Assuming the 90 days trading horizon HUMANA INC is expected to generate 0.79 times more return on investment than Midcap Fund. However, HUMANA INC is 1.27 times less risky than Midcap Fund. It trades about 0.08 of its potential returns per unit of risk. Midcap Fund Class is currently generating about -0.04 per unit of risk. If you would invest 7,928 in HUMANA INC on March 6, 2024 and sell it today you would earn a total of 168.00 from holding HUMANA INC or generate 2.12% return on investment over 90 days.
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.
Over the last 90 days Midcap Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Midcap Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.