Correlation Between BJs Wholesale and Sabra Health

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

By analyzing existing cross correlation between BJs Wholesale Club and Sabra Health Care, you can compare the effects of market volatilities on BJs Wholesale and Sabra Health 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 BJs Wholesale with a short position of Sabra Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and Sabra Health.

Diversification Opportunities for BJs Wholesale and Sabra Health

-0.46

Correlation Coefficient

BJs Wholesale  Sabra Health

Very good diversification

The 3 months correlation between BJs and Sabra is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Sabra Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabra Health Care and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with Sabra Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabra Health Care has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and Sabra Health go up and down completely randomly.

Pair Corralation between BJs Wholesale and Sabra Health

Assuming the 90 days horizon BJs Wholesale Club is expected to generate 0.85 times more return on investment than Sabra Health. However, BJs Wholesale Club is 1.17 times less risky than Sabra Health. It trades about 0.13 of its potential returns per unit of risk. Sabra Health Care is currently generating about -0.02 per unit of risk. If you would invest  8,650  in BJs Wholesale Club on December 5, 2024 and sell it today you would earn a total of  750.00  from holding BJs Wholesale Club or generate 8.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BJs Wholesale Club  vs.  Sabra Health Care

BJs Wholesale Club

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BJs Wholesale is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sabra Health Care

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sabra Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sabra Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BJs Wholesale and Sabra Health

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

The idea behind BJs Wholesale Club and Sabra Health Care 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.