Correlation Between RMR and Transcontinental

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

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

Diversification Opportunities for RMR and Transcontinental

0.25

Correlation Coefficient

RMR  Transcontinental

Modest diversification

The 3 months correlation between RMR and Transcontinental is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding RMR Group and Transcontinental Realty Invest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcontinental Realty and RMR 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 RMR Group are associated (or correlated) with Transcontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcontinental Realty has no effect on the direction of RMR i.e., RMR and Transcontinental go up and down completely randomly.

Pair Corralation between RMR and Transcontinental

Considering the 90-day investment horizon RMR Group is expected to generate 1.4 times more return on investment than Transcontinental. However, RMR is 1.4 times more volatile than Transcontinental Realty Investors. It trades about 0.17 of its potential returns per unit of risk. Transcontinental Realty Investors is currently generating about -0.91 per unit of risk. If you would invest  2,287  in RMR Group on February 5, 2024 and sell it today you would earn a total of  137.00  from holding RMR Group or generate 5.99% return on investment over 90 days.

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

RMR Group  vs.  Transcontinental Realty Invest

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 relatively invariable primary indicators, RMR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Transcontinental Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transcontinental Realty Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with RMR and Transcontinental

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

The idea behind RMR Group and Transcontinental Realty Investors 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.