Correlation Between Sabra Health and Western Digital

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

Diversification Opportunities for Sabra Health and Western Digital

0.58

Correlation Coefficient

Sabra Health  Western Digital

Very weak diversification

The 3 months correlation between Sabra and Western is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sabra Health Care and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Sabra Health i.e., Sabra Health and Western Digital go up and down completely randomly.

Pair Corralation between Sabra Health and Western Digital

Assuming the 90 days horizon Sabra Health is expected to generate 3.58 times less return on investment than Western Digital. But when comparing it to its historical volatility, Sabra Health Care is 1.41 times less risky than Western Digital. It trades about 0.03 of its potential returns per unit of risk. Western Digital is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,831  in Western Digital on September 14, 2024 and sell it today you would earn a total of  684.00  from holding Western Digital or generate 11.73% 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.  Western Digital

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Western Digital

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Sabra Health and Western Digital

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

The idea behind Sabra Health Care and Western Digital 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.