Correlation Between Equity Residential and AvalonBay Communities
Can any of the company-specific risk be diversified away by investing in both Equity Residential and AvalonBay Communities 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 Equity Residential and AvalonBay Communities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Residential and AvalonBay Communities, you can compare the effects of market volatilities on Equity Residential and AvalonBay Communities 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 Equity Residential with a short position of AvalonBay Communities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Residential and AvalonBay Communities.
Diversification Opportunities for Equity Residential and AvalonBay Communities
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Equity and AvalonBay is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Equity Residential 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 Equity Residential are associated (or correlated) with AvalonBay Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AvalonBay Communities has no effect on the direction of Equity Residential i.e., Equity Residential and AvalonBay Communities go up and down completely randomly.
Pair Corralation between Equity Residential and AvalonBay Communities
Considering the 90-day investment horizon Equity Residential is expected to generate 1.14 times more return on investment than AvalonBay Communities. However, Equity Residential is 1.14 times more volatile than AvalonBay Communities. It trades about 0.06 of its potential returns per unit of risk. AvalonBay Communities is currently generating about 0.06 per unit of risk. If you would invest 7,501 in Equity Residential on August 28, 2024 and sell it today you would earn a total of 140.00 from holding Equity Residential or generate 1.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Residential vs. AvalonBay Communities
Performance |
| Timeline |
| Equity Residential |
| AvalonBay Communities |
Equity Residential and AvalonBay Communities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Residential and AvalonBay Communities
The main advantage of trading using opposite Equity Residential and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Residential position performs unexpectedly, AvalonBay Communities 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 AvalonBay Communities will offset losses from the drop in AvalonBay Communities' long position.| Equity Residential vs. Essex Property Trust | Equity Residential vs. Mid America Apartment Communities | Equity Residential vs. Camden Property Trust | Equity Residential vs. UDR Inc |
| AvalonBay Communities vs. Mid America Apartment Communities | AvalonBay Communities vs. Nexpoint Residential Trust |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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