Correlation Between Spirent Communications and Sabra Health

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

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

Diversification Opportunities for Spirent Communications and Sabra Health

-0.21

Correlation Coefficient

Spirent Communications  Sabra Health

Very good diversification

The 3 months correlation between Spirent and Sabra is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc 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 Spirent Communications 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 Spirent Communications plc 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 Spirent Communications i.e., Spirent Communications and Sabra Health go up and down completely randomly.

Pair Corralation between Spirent Communications and Sabra Health

Assuming the 90 days horizon Spirent Communications plc is expected to generate 0.93 times more return on investment than Sabra Health. However, Spirent Communications plc is 1.08 times less risky than Sabra Health. It trades about -0.03 of its potential returns per unit of risk. Sabra Health Care is currently generating about -0.12 per unit of risk. If you would invest  216.00  in Spirent Communications plc on October 6, 2024 and sell it today you would lose (2.00) from holding Spirent Communications plc or give up 0.93% of portfolio value over 90 days.

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

Spirent Communications plc  vs.  Sabra Health Care

Spirent Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sabra Health Care

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Health Care are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sabra Health is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Spirent Communications and Sabra Health

The main advantage of trading using opposite Spirent Communications and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications 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 Spirent Communications plc 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.