Correlation Between Sabra Health and Silicon Motion

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

Diversification Opportunities for Sabra Health and Silicon Motion

-0.15

Correlation Coefficient

Sabra Health  Silicon Motion

Good diversification

The 3 months correlation between Sabra and Silicon is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Silicon Motion Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Motion Technology 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 Silicon Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Motion Technology has no effect on the direction of Sabra Health i.e., Sabra Health and Silicon Motion go up and down completely randomly.

Pair Corralation between Sabra Health and Silicon Motion

Assuming the 90 days horizon Sabra Health Care is expected to generate 0.76 times more return on investment than Silicon Motion. However, Sabra Health Care is 1.32 times less risky than Silicon Motion. It trades about 0.01 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.05 per unit of risk. If you would invest  1,580  in Sabra Health Care on December 30, 2024 and sell it today you would earn a total of  6.00  from holding Sabra Health Care or generate 0.38% 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.  Silicon Motion Technology

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.

Silicon Motion Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Silicon Motion Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sabra Health and Silicon Motion

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

The idea behind Sabra Health Care and Silicon Motion Technology 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.