Correlation Between Sabra Health and GEO

Can any of the company-specific risk be diversified away by investing in both Sabra Health and GEO 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 GEO 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 The GEO Group, you can compare the effects of market volatilities on Sabra Health and GEO 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 GEO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sabra Health and GEO.

Diversification Opportunities for Sabra Health and GEO

0.72

Correlation Coefficient

Sabra Health  GEO

Poor diversification

The 3 months correlation between Sabra and GEO is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and The GEO Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEO Group 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 GEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEO Group has no effect on the direction of Sabra Health i.e., Sabra Health and GEO go up and down completely randomly.

Pair Corralation between Sabra Health and GEO

Assuming the 90 days horizon Sabra Health is expected to generate 17.61 times less return on investment than GEO. But when comparing it to its historical volatility, Sabra Health Care is 5.63 times less risky than GEO. It trades about 0.11 of its potential returns per unit of risk. The GEO Group is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  1,303  in The GEO Group on September 4, 2024 and sell it today you would earn a total of  1,255  from holding The GEO Group or generate 96.32% return on investment over 90 days.

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

Sabra Health Care  vs.  The GEO Group

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.

GEO Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The GEO Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GEO reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sabra Health and GEO

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

The idea behind Sabra Health Care and The GEO Group 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.