Correlation Between Automatic Data and Sabra Health

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

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

Diversification Opportunities for Automatic Data and Sabra Health

0.65

Correlation Coefficient

Automatic Data  Sabra Health

Poor diversification

The 3 months correlation between Automatic and Sabra is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing 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 Automatic Data 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 Automatic Data Processing 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 Automatic Data i.e., Automatic Data and Sabra Health go up and down completely randomly.

Pair Corralation between Automatic Data and Sabra Health

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.69 times more return on investment than Sabra Health. However, Automatic Data Processing is 1.45 times less risky than Sabra Health. It trades about 0.18 of its potential returns per unit of risk. Sabra Health Care is currently generating about -0.05 per unit of risk. If you would invest  24,800  in Automatic Data Processing on September 24, 2024 and sell it today you would earn a total of  3,415  from holding Automatic Data Processing or generate 13.77% return on investment over 90 days.

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

Automatic Data Processing  vs.  Sabra Health Care

Automatic Data Processing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Automatic Data and Sabra Health

The main advantage of trading using opposite Automatic Data and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data 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 Automatic Data Processing 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.