Correlation Between Select Medical and SAB Biotherapeutics

Can any of the company-specific risk be diversified away by investing in both Select Medical and SAB Biotherapeutics 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 Select Medical and SAB Biotherapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Select Medical Holdings and SAB Biotherapeutics, you can compare the effects of market volatilities on Select Medical and SAB Biotherapeutics 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 Select Medical with a short position of SAB Biotherapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Medical and SAB Biotherapeutics.

Diversification Opportunities for Select Medical and SAB Biotherapeutics

0.45

Correlation Coefficient

Select Medical  SAB Biotherapeutics

Very weak diversification

The 3 months correlation between Select and SAB is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and SAB Biotherapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAB Biotherapeutics and Select Medical 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 Select Medical Holdings are associated (or correlated) with SAB Biotherapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAB Biotherapeutics has no effect on the direction of Select Medical i.e., Select Medical and SAB Biotherapeutics go up and down completely randomly.

Pair Corralation between Select Medical and SAB Biotherapeutics

Considering the 90-day investment horizon Select Medical Holdings is expected to under-perform the SAB Biotherapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Select Medical Holdings is 2.55 times less risky than SAB Biotherapeutics. The stock trades about -0.1 of its potential returns per unit of risk. The SAB Biotherapeutics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  278.00  in SAB Biotherapeutics on July 1, 2024 and sell it today you would lose (21.00) from holding SAB Biotherapeutics or give up 7.55% of portfolio value over 90 days.

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

Select Medical Holdings  vs.  SAB Biotherapeutics

Select Medical Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Select Medical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Select Medical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

SAB Biotherapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SAB Biotherapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, SAB Biotherapeutics is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Select Medical and SAB Biotherapeutics

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

The idea behind Select Medical Holdings and SAB Biotherapeutics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.