Correlation Between Berkshire Hathaway and Sabine Royalty

Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway and Sabine Royalty 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 Berkshire Hathaway and Sabine Royalty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Berkshire Hathaway and Sabine Royalty Trust, you can compare the effects of market volatilities on Berkshire Hathaway and Sabine Royalty 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 Berkshire Hathaway with a short position of Sabine Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Sabine Royalty.

Diversification Opportunities for Berkshire Hathaway and Sabine Royalty

0.67

Correlation Coefficient

Berkshire Hathaway  Sabine Royalty

Poor diversification

The 3 months correlation between Berkshire and Sabine is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Sabine Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabine Royalty Trust and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Sabine Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabine Royalty Trust has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Sabine Royalty go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Sabine Royalty

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 3.75 times less return on investment than Sabine Royalty. In addition to that, Berkshire Hathaway is 1.09 times more volatile than Sabine Royalty Trust. It trades about 0.05 of its total potential returns per unit of risk. Sabine Royalty Trust is currently generating about 0.21 per unit of volatility. If you would invest  5,895  in Sabine Royalty Trust on September 13, 2024 and sell it today you would earn a total of  772.00  from holding Sabine Royalty Trust or generate 13.1% return on investment over 90 days.

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

Berkshire Hathaway  vs.  Sabine Royalty Trust

Berkshire Hathaway

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sabine Royalty Trust

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sabine Royalty Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental drivers, Sabine Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Berkshire Hathaway and Sabine Royalty

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

The idea behind Berkshire Hathaway and Sabine Royalty Trust 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.