Correlation Between AvalonBay Communities and Lennar

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

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

Diversification Opportunities for AvalonBay Communities and Lennar

-0.45

Correlation Coefficient

AvalonBay Communities  Lennar

Very good diversification

The 3 months correlation between AvalonBay and Lennar is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Lennar go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Lennar

Assuming the 90 days trading horizon AvalonBay Communities is expected to generate 0.78 times more return on investment than Lennar. However, AvalonBay Communities is 1.28 times less risky than Lennar. It trades about 0.14 of its potential returns per unit of risk. Lennar is currently generating about -0.14 per unit of risk. If you would invest  29,944  in AvalonBay Communities on October 3, 2024 and sell it today you would earn a total of  4,364  from holding AvalonBay Communities or generate 14.57% return on investment over 90 days.

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

AvalonBay Communities  vs.  Lennar

AvalonBay Communities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, AvalonBay Communities sustained solid returns over the last few months and may actually be approaching a breakup point.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with AvalonBay Communities and Lennar

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

The idea behind AvalonBay Communities and Lennar 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.