Correlation Between Douglas Emmett and Sabra Healthcare

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

By analyzing existing cross correlation between Douglas Emmett and Sabra Healthcare REIT, you can compare the effects of market volatilities on Douglas Emmett and Sabra Healthcare 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 Douglas Emmett with a short position of Sabra Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Douglas Emmett and Sabra Healthcare.

Diversification Opportunities for Douglas Emmett and Sabra Healthcare

0.71

Correlation Coefficient

Douglas Emmett  Sabra Healthcare

Poor diversification

The 3 months correlation between Douglas and Sabra is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Emmett and Sabra Healthcare REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabra Healthcare REIT and Douglas Emmett 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 Douglas Emmett are associated (or correlated) with Sabra Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabra Healthcare REIT has no effect on the direction of Douglas Emmett i.e., Douglas Emmett and Sabra Healthcare go up and down completely randomly.

Pair Corralation between Douglas Emmett and Sabra Healthcare

Considering the 90-day investment horizon Douglas Emmett is expected to generate 1.02 times more return on investment than Sabra Healthcare. However, Douglas Emmett is 1.02 times more volatile than Sabra Healthcare REIT. It trades about 0.22 of its potential returns per unit of risk. Sabra Healthcare REIT is currently generating about 0.12 per unit of risk. If you would invest  1,561  in Douglas Emmett on September 3, 2024 and sell it today you would earn a total of  375.00  from holding Douglas Emmett or generate 24.02% return on investment over 90 days.

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

Douglas Emmett  vs.  Sabra Healthcare REIT

Douglas Emmett

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Emmett are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical and fundamental indicators, Douglas Emmett demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Sabra Healthcare REIT

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Healthcare REIT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Sabra Healthcare may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Douglas Emmett and Sabra Healthcare

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

The idea behind Douglas Emmett and Sabra Healthcare REIT 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.