Correlation Between UNITED RENTALS and Sabra Health

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

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

Diversification Opportunities for UNITED RENTALS and Sabra Health

0.69

Correlation Coefficient

UNITED RENTALS  Sabra Health

Poor diversification

The 3 months correlation between UNITED and Sabra is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS 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 UNITED RENTALS 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 UNITED RENTALS 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 UNITED RENTALS i.e., UNITED RENTALS and Sabra Health go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Sabra Health

Assuming the 90 days trading horizon UNITED RENTALS is expected to under-perform the Sabra Health. In addition to that, UNITED RENTALS is 1.16 times more volatile than Sabra Health Care. It trades about -0.01 of its total potential returns per unit of risk. Sabra Health Care is currently generating about 0.0 per unit of volatility. If you would invest  1,630  in Sabra Health Care on September 22, 2024 and sell it today you would lose (10.00) from holding Sabra Health Care or give up 0.61% of portfolio value over 90 days.

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

UNITED RENTALS  vs.  Sabra Health Care

UNITED RENTALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNITED RENTALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, UNITED RENTALS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sabra Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sabra Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sabra Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UNITED RENTALS and Sabra Health

The main advantage of trading using opposite UNITED RENTALS and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UNITED RENTALS 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 UNITED RENTALS 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.