Correlation Between Sabra Health and Automatic Data

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

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

Diversification Opportunities for Sabra Health and Automatic Data

0.74

Correlation Coefficient

Sabra Health  Automatic Data

Poor diversification

The 3 months correlation between Sabra and Automatic is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and Sabra Health 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 Sabra Health Care are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Sabra Health i.e., Sabra Health and Automatic Data go up and down completely randomly.

Pair Corralation between Sabra Health and Automatic Data

Assuming the 90 days horizon Sabra Health is expected to generate 11.54 times less return on investment than Automatic Data. In addition to that, Sabra Health is 1.59 times more volatile than Automatic Data Processing. It trades about 0.01 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.19 per unit of volatility. If you would invest  25,009  in Automatic Data Processing on September 17, 2024 and sell it today you would earn a total of  3,481  from holding Automatic Data Processing or generate 13.92% return on investment over 90 days.

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

Sabra Health Care  vs.  Automatic Data Processing

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.

Automatic Data Processing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sabra Health and Automatic Data

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

The idea behind Sabra Health Care and Automatic Data Processing 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 Transaction History module to view history of all your transactions and understand their impact on performance.