Correlation Between CareTrust REIT and RMR

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

By analyzing existing cross correlation between CareTrust REIT and RMR Group, you can compare the effects of market volatilities on CareTrust REIT and RMR 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 CareTrust REIT with a short position of RMR. Check out your portfolio center. Please also check ongoing floating volatility patterns of CareTrust REIT and RMR.

Diversification Opportunities for CareTrust REIT and RMR

0.76

Correlation Coefficient

CareTrust REIT  RMR

Poor diversification

The 3 months correlation between CareTrust and RMR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CareTrust REIT and RMR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMR Group and CareTrust REIT 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 CareTrust REIT are associated (or correlated) with RMR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMR Group has no effect on the direction of CareTrust REIT i.e., CareTrust REIT and RMR go up and down completely randomly.

Pair Corralation between CareTrust REIT and RMR

Given the investment horizon of 90 days CareTrust REIT is expected to under-perform the RMR. But the stock apears to be less risky and, when comparing its historical volatility, CareTrust REIT is 1.13 times less risky than RMR. The stock trades about -0.24 of its potential returns per unit of risk. The RMR Group is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  2,195  in RMR Group on October 4, 2024 and sell it today you would lose (131.00) from holding RMR Group or give up 5.97% of portfolio value over 90 days.

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

CareTrust REIT  vs.  RMR Group

CareTrust REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CareTrust REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

RMR Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RMR Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with CareTrust REIT and RMR

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

The idea behind CareTrust REIT and RMR Group 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.