Correlation Between PennantPark Investment and AvalonBay Communities

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

By analyzing existing cross correlation between PennantPark Investment and AvalonBay Communities, you can compare the effects of market volatilities on PennantPark Investment 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 PennantPark Investment with a short position of AvalonBay Communities. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennantPark Investment and AvalonBay Communities.

Diversification Opportunities for PennantPark Investment and AvalonBay Communities

-0.11

Correlation Coefficient

PennantPark Investment  AvalonBay Communities

Good diversification

The 3 months correlation between PennantPark and AvalonBay is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding PennantPark Investment and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and PennantPark Investment 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 PennantPark Investment 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 PennantPark Investment i.e., PennantPark Investment and AvalonBay Communities go up and down completely randomly.

Pair Corralation between PennantPark Investment and AvalonBay Communities

Assuming the 90 days horizon PennantPark Investment is expected to generate 1.53 times more return on investment than AvalonBay Communities. However, PennantPark Investment is 1.53 times more volatile than AvalonBay Communities. It trades about 0.1 of its potential returns per unit of risk. AvalonBay Communities is currently generating about -0.02 per unit of risk. If you would invest  616.00  in PennantPark Investment on December 1, 2024 and sell it today you would earn a total of  59.00  from holding PennantPark Investment or generate 9.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

PennantPark Investment  vs.  AvalonBay Communities

PennantPark Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

AvalonBay Communities

Risk-Adjusted Performance

Very Weak

Over the last 90 days AvalonBay Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AvalonBay Communities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PennantPark Investment and AvalonBay Communities

The main advantage of trading using opposite PennantPark Investment and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennantPark Investment 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.

The idea behind PennantPark Investment and AvalonBay Communities 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.