Correlation Between Nippon Steel and Sabra Health

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

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

Diversification Opportunities for Nippon Steel and Sabra Health

-0.52

Correlation Coefficient

Nippon Steel  Sabra Health

Excellent diversification

The 3 months correlation between Nippon and Sabra is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel 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 Nippon Steel 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 Nippon Steel 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 Nippon Steel i.e., Nippon Steel and Sabra Health go up and down completely randomly.

Pair Corralation between Nippon Steel and Sabra Health

Assuming the 90 days trading horizon Nippon Steel is expected to under-perform the Sabra Health. But the stock apears to be less risky and, when comparing its historical volatility, Nippon Steel is 1.04 times less risky than Sabra Health. The stock trades about -0.04 of its potential returns per unit of risk. The Sabra Health Care is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,502  in Sabra Health Care on August 31, 2024 and sell it today you would earn a total of  286.00  from holding Sabra Health Care or generate 19.04% return on investment over 90 days.

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

Nippon Steel  vs.  Sabra Health Care

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nippon Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Sabra Health Care

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Health Care are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sabra Health reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Steel and Sabra Health

The main advantage of trading using opposite Nippon Steel and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel 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 Nippon Steel 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.