Correlation Between HUMANA and Companhia Brasileira

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

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

Diversification Opportunities for HUMANA and Companhia Brasileira

0.25

Correlation Coefficient

HUMANA  Companhia Brasileira

Modest diversification

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

Pair Corralation between HUMANA and Companhia Brasileira

Assuming the 90 days trading horizon HUMANA INC is expected to generate 13.95 times more return on investment than Companhia Brasileira. However, HUMANA is 13.95 times more volatile than Companhia Brasileira de. It trades about 0.08 of its potential returns per unit of risk. Companhia Brasileira de is currently generating about -0.06 per unit of risk. If you would invest  7,564  in HUMANA INC on February 1, 2024 and sell it today you would earn a total of  532.00  from holding HUMANA INC or generate 7.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.51%
Values	Daily Returns

HUMANA INC  vs.  Companhia Brasileira de

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.

Companhia Brasileira

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Brasileira de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of sluggish performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with HUMANA and Companhia Brasileira

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

The idea behind HUMANA INC and Companhia Brasileira de 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.