Correlation Between CareTrust REIT and Welltower

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

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

Diversification Opportunities for CareTrust REIT and Welltower

0.37

Correlation Coefficient

CareTrust REIT  Welltower

Weak diversification

The 3 months correlation between CareTrust and Welltower is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding CareTrust REIT and Welltower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welltower 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 Welltower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welltower has no effect on the direction of CareTrust REIT i.e., CareTrust REIT and Welltower go up and down completely randomly.

Pair Corralation between CareTrust REIT and Welltower

Given the investment horizon of 90 days CareTrust REIT is expected to generate 1.41 times less return on investment than Welltower. But when comparing it to its historical volatility, CareTrust REIT is 1.04 times less risky than Welltower. It trades about 0.08 of its potential returns per unit of risk. Welltower is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,565  in Welltower on September 28, 2024 and sell it today you would earn a total of  6,074  from holding Welltower or generate 92.52% return on investment over 90 days.

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

CareTrust REIT  vs.  Welltower

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.

Welltower

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Welltower has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Welltower is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with CareTrust REIT and Welltower

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

The idea behind CareTrust REIT and Welltower 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.