Correlation Between KB HOME and Sabra Health

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

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

Diversification Opportunities for KB HOME and Sabra Health

0.21

Correlation Coefficient

KB HOME  Sabra Health

Modest diversification

The 3 months correlation between KBH and Sabra is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding KB 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 KB HOME 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 KB 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 KB HOME i.e., KB HOME and Sabra Health go up and down completely randomly.

Pair Corralation between KB HOME and Sabra Health

Assuming the 90 days trading horizon KB HOME is expected to under-perform the Sabra Health. In addition to that, KB HOME is 1.33 times more volatile than Sabra Health Care. It trades about -0.1 of its total potential returns per unit of risk. Sabra Health Care is currently generating about 0.05 per unit of volatility. If you would invest  1,606  in Sabra Health Care on September 20, 2024 and sell it today you would earn a total of  66.00  from holding Sabra Health Care or generate 4.11% return on investment over 90 days.

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

KB HOME  vs.  Sabra Health Care

KB HOME

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB HOME has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Sabra Health Care

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Health Care are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 KB HOME and Sabra Health

The main advantage of trading using opposite KB HOME and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB HOME 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 KB 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.