Correlation Between Sabra Health and INDOFOOD AGRI

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

Diversification Opportunities for Sabra Health and INDOFOOD AGRI

0.07

Correlation Coefficient

Sabra Health  INDOFOOD AGRI

Significant diversification

The 3 months correlation between Sabra and INDOFOOD is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES 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 INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of Sabra Health i.e., Sabra Health and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Sabra Health and INDOFOOD AGRI

Assuming the 90 days horizon Sabra Health Care is expected to generate 0.82 times more return on investment than INDOFOOD AGRI. However, Sabra Health Care is 1.22 times less risky than INDOFOOD AGRI. It trades about -0.04 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about -0.04 per unit of risk. If you would invest  1,623  in Sabra Health Care on December 2, 2024 and sell it today you would lose (64.00) from holding Sabra Health Care or give up 3.94% of portfolio value over 90 days.

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

Sabra Health Care  vs.  INDOFOOD AGRI RES

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 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.

INDOFOOD AGRI RES

Risk-Adjusted Performance

Very Weak

Over the last 90 days INDOFOOD AGRI RES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Sabra Health and INDOFOOD AGRI

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

The idea behind Sabra Health Care and INDOFOOD AGRI RES 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.