Correlation Between Sabra Health and WPP PLC

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

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

Diversification Opportunities for Sabra Health and WPP PLC

0.81

Correlation Coefficient

Sabra Health  WPP PLC

Very poor diversification

The 3 months correlation between Sabra and WPP is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and Sabra Health 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 Sabra Health Care are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of Sabra Health i.e., Sabra Health and WPP PLC go up and down completely randomly.

Pair Corralation between Sabra Health and WPP PLC

Assuming the 90 days horizon Sabra Health is expected to generate 3.0 times less return on investment than WPP PLC. In addition to that, Sabra Health is 1.2 times more volatile than WPP PLC ADR. It trades about 0.07 of its total potential returns per unit of risk. WPP PLC ADR is currently generating about 0.23 per unit of volatility. If you would invest  4,270  in WPP PLC ADR on September 12, 2024 and sell it today you would earn a total of  1,030  from holding WPP PLC ADR or generate 24.12% return on investment over 90 days.

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

Sabra Health Care  vs.  WPP PLC ADR

Sabra Health Care

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Health Care are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sabra Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WPP PLC ADR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sabra Health and WPP PLC

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

The idea behind Sabra Health Care and WPP PLC ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.