Correlation Between New England and RMR

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

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

Diversification Opportunities for New England and RMR

-0.48

Correlation Coefficient

New England  RMR

Very good diversification

The 3 months correlation between New and RMR is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding New England Realty and RMR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMR Group and New England 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 New England Realty 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 New England i.e., New England and RMR go up and down completely randomly.

Pair Corralation between New England and RMR

Considering the 90-day investment horizon New England Realty is expected to generate 2.95 times more return on investment than RMR. However, New England is 2.95 times more volatile than RMR Group. It trades about 0.2 of its potential returns per unit of risk. RMR Group is currently generating about -0.11 per unit of risk. If you would invest  7,720  in New England Realty on October 23, 2024 and sell it today you would earn a total of  368.00  from holding New England Realty or generate 4.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	36.84%
Values	Daily Returns

New England Realty  vs.  RMR Group

New England Realty

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days New England Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain technical and fundamental indicators, New England may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 unfluctuating 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 New England and RMR

The main advantage of trading using opposite New England and RMR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New England 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 New England Realty 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.