Correlation Between Sabra Health and Norsk Hydro

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

Diversification Opportunities for Sabra Health and Norsk Hydro

0.47

Correlation Coefficient

Sabra Health  Norsk Hydro

Very weak diversification

The 3 months correlation between Sabra and Norsk is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA 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 Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of Sabra Health i.e., Sabra Health and Norsk Hydro go up and down completely randomly.

Pair Corralation between Sabra Health and Norsk Hydro

Assuming the 90 days horizon Sabra Health is expected to generate 5.33 times less return on investment than Norsk Hydro. But when comparing it to its historical volatility, Sabra Health Care is 1.64 times less risky than Norsk Hydro. It trades about 0.03 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  496.00  in Norsk Hydro ASA on September 13, 2024 and sell it today you would earn a total of  70.00  from holding Norsk Hydro ASA or generate 14.11% return on investment over 90 days.

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

Sabra Health Care  vs.  Norsk Hydro ASA

Sabra Health Care

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sabra Health Care are ranked lower than 2 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Norsk Hydro ASA

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sabra Health and Norsk Hydro

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

The idea behind Sabra Health Care and Norsk Hydro ASA 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.