Correlation Between AvalonBay Communities and WEG SA

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

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

Diversification Opportunities for AvalonBay Communities and WEG SA

0.61

Correlation Coefficient

AvalonBay Communities  WEG SA

Poor diversification

The 3 months correlation between AvalonBay and WEG is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and WEG SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEG SA 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 WEG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEG SA has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and WEG SA go up and down completely randomly.

Pair Corralation between AvalonBay Communities and WEG SA

Assuming the 90 days trading horizon AvalonBay Communities is expected to generate 1.06 times more return on investment than WEG SA. However, AvalonBay Communities is 1.06 times more volatile than WEG SA. It trades about -0.08 of its potential returns per unit of risk. WEG SA is currently generating about -0.1 per unit of risk. If you would invest  34,308  in AvalonBay Communities on December 29, 2024 and sell it today you would lose (3,914) from holding AvalonBay Communities or give up 11.41% of portfolio value over 90 days.

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

AvalonBay Communities  vs.  WEG SA

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

WEG SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days WEG SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with AvalonBay Communities and WEG SA

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

The idea behind AvalonBay Communities and WEG SA 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.