Correlation Between Potomac Bancshares and HUMANA

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

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

Diversification Opportunities for Potomac Bancshares and HUMANA

-0.47

Correlation Coefficient

Potomac Bancshares  HUMANA

Very good diversification

The 3 months correlation between Potomac and HUMANA is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares and HUMANA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUMANA INC and Potomac 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 Potomac 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 Potomac Bancshares i.e., Potomac Bancshares and HUMANA go up and down completely randomly.

Pair Corralation between Potomac Bancshares and HUMANA

Given the investment horizon of 90 days Potomac Bancshares is expected to generate 2.7 times more return on investment than HUMANA. However, Potomac Bancshares is 2.7 times more volatile than HUMANA INC. It trades about 0.13 of its potential returns per unit of risk. HUMANA INC is currently generating about -0.15 per unit of risk. If you would invest  1,407  in Potomac Bancshares on August 31, 2024 and sell it today you would earn a total of  243.00  from holding Potomac Bancshares or generate 17.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Potomac Bancshares  vs.  HUMANA INC

Potomac Bancshares

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Potomac Bancshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Potomac Bancshares unveiled 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 latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for HUMANA INC investors.

Pair Trading with Potomac Bancshares and HUMANA

The main advantage of trading using opposite Potomac Bancshares and HUMANA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Potomac 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 Potomac 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.