Correlation Between Sabra Health and Universal Health

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

Diversification Opportunities for Sabra Health and Universal Health

-0.04

Correlation Coefficient

Sabra Health  Universal Health

Good diversification

The 3 months correlation between Sabra and Universal is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Universal Health Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Realty 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 Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Realty has no effect on the direction of Sabra Health i.e., Sabra Health and Universal Health go up and down completely randomly.

Pair Corralation between Sabra Health and Universal Health

Assuming the 90 days horizon Sabra Health Care is expected to under-perform the Universal Health. But the stock apears to be less risky and, when comparing its historical volatility, Sabra Health Care is 1.25 times less risky than Universal Health. The stock trades about -0.38 of its potential returns per unit of risk. The Universal Health Realty is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  3,796  in Universal Health Realty on September 24, 2024 and sell it today you would lose (259.00) from holding Universal Health Realty or give up 6.82% of portfolio value over 90 days.

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

Sabra Health Care  vs.  Universal Health Realty

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.

Universal Health Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Health Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sabra Health and Universal Health

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

The idea behind Sabra Health Care and Universal Health Realty 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.