Correlation Between Amazon and AvalonBay Communities

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

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

Diversification Opportunities for Amazon and AvalonBay Communities

0.86

Correlation Coefficient

Amazon  AvalonBay Communities

Very poor diversification

The 3 months correlation between Amazon and AvalonBay is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Amazon and AvalonBay Communities

Assuming the 90 days trading horizon Amazon is expected to generate 1.01 times less return on investment than AvalonBay Communities. In addition to that, Amazon is 1.11 times more volatile than AvalonBay Communities. It trades about 0.13 of its total potential returns per unit of risk. AvalonBay Communities is currently generating about 0.15 per unit of volatility. If you would invest  20,935  in AvalonBay Communities on October 2, 2024 and sell it today you would earn a total of  13,373  from holding AvalonBay Communities or generate 63.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.82%
Values	Daily Returns

Amazon Inc  vs.  AvalonBay Communities

Amazon Inc

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak basic indicators, AvalonBay Communities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and AvalonBay Communities

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

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.