Correlation Between Sabra Health and Nippon Steel

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

Diversification Opportunities for Sabra Health and Nippon Steel

-0.4

Correlation Coefficient

Sabra Health  Nippon Steel

Very good diversification

The 3 months correlation between Sabra and Nippon is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel 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 Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of Sabra Health i.e., Sabra Health and Nippon Steel go up and down completely randomly.

Pair Corralation between Sabra Health and Nippon Steel

Assuming the 90 days horizon Sabra Health is expected to generate 4.82 times less return on investment than Nippon Steel. In addition to that, Sabra Health is 1.31 times more volatile than Nippon Steel. It trades about 0.01 of its total potential returns per unit of risk. Nippon Steel is currently generating about 0.08 per unit of volatility. If you would invest  1,868  in Nippon Steel on December 30, 2024 and sell it today you would earn a total of  126.00  from holding Nippon Steel or generate 6.75% return on investment over 90 days.

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

Sabra Health Care  vs.  Nippon Steel

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

Nippon Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sabra Health and Nippon Steel

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

The idea behind Sabra Health Care and Nippon Steel 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..