Correlation Between AvalonBay Communities and Dow Jones
Can any of the company-specific risk be diversified away by investing in both AvalonBay Communities and Dow Jones 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 AvalonBay Communities and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AvalonBay Communities and Dow Jones Industrial, you can compare the effects of market volatilities on AvalonBay Communities and Dow Jones 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 AvalonBay Communities with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of AvalonBay Communities and Dow Jones.
Diversification Opportunities for AvalonBay Communities and Dow Jones
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AvalonBay and Dow is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and AvalonBay Communities 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 AvalonBay Communities are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Dow Jones go up and down completely randomly.
Pair Corralation between AvalonBay Communities and Dow Jones
Assuming the 90 days horizon AvalonBay Communities is expected to generate 1.5 times more return on investment than Dow Jones. However, AvalonBay Communities is 1.5 times more volatile than Dow Jones Industrial. It trades about 0.27 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.37 per unit of risk. If you would invest 20,015 in AvalonBay Communities on September 5, 2024 and sell it today you would earn a total of 1,720 from holding AvalonBay Communities or generate 8.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
AvalonBay Communities vs. Dow Jones Industrial
Performance |
| Timeline |
AvalonBay Communities and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
AvalonBay Communities
Pair trading matchups for AvalonBay Communities
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with AvalonBay Communities and Dow Jones
The main advantage of trading using opposite AvalonBay Communities and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AvalonBay Communities position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.The idea behind AvalonBay Communities and Dow Jones Industrial 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.| Dow Jones vs. Shake Shack | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. Dave Busters Entertainment | Dow Jones vs. Meli Hotels International |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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