Correlation Between Diamondrock Hospitality and Sabra Health
Can any of the company-specific risk be diversified away by investing in both Diamondrock Hospitality 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 Diamondrock Hospitality and Sabra Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diamondrock Hospitality Co and Sabra Health Care, you can compare the effects of market volatilities on Diamondrock Hospitality 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 Diamondrock Hospitality with a short position of Sabra Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamondrock Hospitality and Sabra Health.
Diversification Opportunities for Diamondrock Hospitality and Sabra Health
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Diamondrock and Sabra is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Diamondrock Hospitality Co 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 Diamondrock Hospitality 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 Diamondrock Hospitality Co 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 Diamondrock Hospitality i.e., Diamondrock Hospitality and Sabra Health go up and down completely randomly.
Pair Corralation between Diamondrock Hospitality and Sabra Health
Assuming the 90 days trading horizon Diamondrock Hospitality is expected to generate 4.72 times less return on investment than Sabra Health. In addition to that, Diamondrock Hospitality is 1.1 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 0.08 per unit of volatility. If you would invest 991.00 in Sabra Health Care on August 30, 2024 and sell it today you would earn a total of 767.00 from holding Sabra Health Care or generate 77.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diamondrock Hospitality Co vs. Sabra Health Care
Performance |
| Timeline |
| Diamondrock Hospitality |
| Sabra Health Care |
Diamondrock Hospitality and Sabra Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diamondrock Hospitality and Sabra Health
The main advantage of trading using opposite Diamondrock Hospitality and Sabra Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamondrock Hospitality 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 Diamondrock Hospitality Co 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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Check out your portfolio center.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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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