Correlation Between AvalonBay Communities and V1TA34

Can any of the company-specific risk be diversified away by investing in both AvalonBay Communities and V1TA34 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 V1TA34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AvalonBay Communities and V1TA34, you can compare the effects of market volatilities on AvalonBay Communities and V1TA34 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 V1TA34. Check out your portfolio center. Please also check ongoing floating volatility patterns of AvalonBay Communities and V1TA34.

Diversification Opportunities for AvalonBay Communities and V1TA34

0.64

Correlation Coefficient

AvalonBay Communities  V1TA34

Poor diversification

The 3 months correlation between AvalonBay and V1TA34 is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and V1TA34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on V1TA34 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 V1TA34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of V1TA34 has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and V1TA34 go up and down completely randomly.

Pair Corralation between AvalonBay Communities and V1TA34

Assuming the 90 days trading horizon AvalonBay Communities is expected to generate 1.38 times more return on investment than V1TA34. However, AvalonBay Communities is 1.38 times more volatile than V1TA34. It trades about 0.08 of its potential returns per unit of risk. V1TA34 is currently generating about 0.09 per unit of risk. If you would invest  31,400  in AvalonBay Communities on September 26, 2024 and sell it today you would earn a total of  2,524  from holding AvalonBay Communities or generate 8.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

AvalonBay Communities  vs.  V1TA34

AvalonBay Communities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AvalonBay Communities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

V1TA34

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days V1TA34 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, V1TA34 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AvalonBay Communities and V1TA34

The main advantage of trading using opposite AvalonBay Communities and V1TA34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AvalonBay Communities position performs unexpectedly, V1TA34 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 V1TA34 will offset losses from the drop in V1TA34's long position.

The idea behind AvalonBay Communities and V1TA34 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.