Correlation Between Sabra Health and Diamondrock Hospitality

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

Diversification Opportunities for Sabra Health and Diamondrock Hospitality

0.28

Correlation Coefficient

Sabra Health  Diamondrock Hospitality

Modest diversification

The 3 months correlation between Sabra and Diamondrock is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Diamondrock Hospitality Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Sabra Health i.e., Sabra Health and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Sabra Health and Diamondrock Hospitality

Assuming the 90 days horizon Sabra Health Care is expected to generate 1.27 times more return on investment than Diamondrock Hospitality. However, Sabra Health is 1.27 times more volatile than Diamondrock Hospitality Co. It trades about -0.01 of its potential returns per unit of risk. Diamondrock Hospitality Co is currently generating about -0.19 per unit of risk. If you would invest  1,623  in Sabra Health Care on December 31, 2024 and sell it today you would lose (38.00) from holding Sabra Health Care or give up 2.34% of portfolio value over 90 days.

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

Sabra Health Care  vs.  Diamondrock Hospitality Co

Sabra Health Care

Risk-Adjusted Performance

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sabra Health and Diamondrock Hospitality

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

The idea behind Sabra Health Care and Diamondrock Hospitality Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.