Correlation Between American Airlines and Sabra Health

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

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

Diversification Opportunities for American Airlines and Sabra Health

-0.4

Correlation Coefficient

American Airlines  Sabra Health

Very good diversification

The 3 months correlation between American and Sabra is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group 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 American Airlines 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 American Airlines Group 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 American Airlines i.e., American Airlines and Sabra Health go up and down completely randomly.

Pair Corralation between American Airlines and Sabra Health

Assuming the 90 days horizon American Airlines Group is expected to generate 1.16 times more return on investment than Sabra Health. However, American Airlines is 1.16 times more volatile than Sabra Health Care. It trades about 0.34 of its potential returns per unit of risk. Sabra Health Care is currently generating about 0.09 per unit of risk. If you would invest  1,586  in American Airlines Group on October 22, 2024 and sell it today you would earn a total of  201.00  from holding American Airlines Group or generate 12.67% return on investment over 90 days.

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

American Airlines Group  vs.  Sabra Health Care

American Airlines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Sabra Health Care

Risk-Adjusted Performance

0 of 100

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 American Airlines and Sabra Health

The main advantage of trading using opposite American Airlines and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines 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 American Airlines Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.