Correlation Between Taylor Morrison and Sabra Health

Can any of the company-specific risk be diversified away by investing in both Taylor Morrison and Sabra 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 Taylor Morrison and Sabra Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taylor Morrison Home and Sabra Health Care, you can compare the effects of market volatilities on Taylor Morrison and Sabra 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 Taylor Morrison with a short position of Sabra Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taylor Morrison and Sabra Health.

Diversification Opportunities for Taylor Morrison and Sabra Health

0.73

Correlation Coefficient

Taylor Morrison  Sabra Health

Poor diversification

The 3 months correlation between Taylor and Sabra is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Morrison Home and Sabra Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabra Health Care and Taylor Morrison 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 Taylor Morrison Home are associated (or correlated) with Sabra Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabra Health Care has no effect on the direction of Taylor Morrison i.e., Taylor Morrison and Sabra Health go up and down completely randomly.

Pair Corralation between Taylor Morrison and Sabra Health

Assuming the 90 days trading horizon Taylor Morrison Home is expected to generate 1.24 times more return on investment than Sabra Health. However, Taylor Morrison is 1.24 times more volatile than Sabra Health Care. It trades about 0.08 of its potential returns per unit of risk. Sabra Health Care is currently generating about 0.07 per unit of risk. If you would invest  2,800  in Taylor Morrison Home on September 21, 2024 and sell it today you would earn a total of  3,000  from holding Taylor Morrison Home or generate 107.14% return on investment over 90 days.

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

Taylor Morrison Home  vs.  Sabra Health Care

Taylor Morrison Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taylor Morrison Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Sabra Health Care

Risk-Adjusted Performance

0 of 100

Insignificant

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.

Pair Trading with Taylor Morrison and Sabra Health

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

The idea behind Taylor Morrison Home and Sabra Health Care 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.