Correlation Between Sabra Health and American Eagle

Can any of the company-specific risk be diversified away by investing in both Sabra Health and American Eagle 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 American Eagle 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 American Eagle Outfitters, you can compare the effects of market volatilities on Sabra Health and American Eagle 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 American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sabra Health and American Eagle.

Diversification Opportunities for Sabra Health and American Eagle

-0.32

Correlation Coefficient

Sabra Health  American Eagle

Very good diversification

The 3 months correlation between Sabra and American is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and American Eagle Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Eagle Outfitters 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 American Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Eagle Outfitters has no effect on the direction of Sabra Health i.e., Sabra Health and American Eagle go up and down completely randomly.

Pair Corralation between Sabra Health and American Eagle

Assuming the 90 days horizon Sabra Health Care is expected to generate 0.8 times more return on investment than American Eagle. However, Sabra Health Care is 1.24 times less risky than American Eagle. It trades about 0.16 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.02 per unit of risk. If you would invest  1,502  in Sabra Health Care on August 31, 2024 and sell it today you would earn a total of  286.00  from holding Sabra Health Care or generate 19.04% return on investment over 90 days.

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

Sabra Health Care  vs.  American Eagle Outfitters

Sabra Health Care

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Health Care are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sabra Health reported solid returns over the last few months and may actually be approaching a breakup point.

American Eagle Outfitters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Eagle Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Eagle is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sabra Health and American Eagle

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

The idea behind Sabra Health Care and American Eagle Outfitters 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .