Correlation Between AvalonBay Communities and Clipper Realty

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

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

Diversification Opportunities for AvalonBay Communities and Clipper Realty

0.35

Correlation Coefficient

AvalonBay Communities  Clipper Realty

Weak diversification

The 3 months correlation between AvalonBay and Clipper is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Clipper Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clipper Realty 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 Clipper Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clipper Realty has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Clipper Realty go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Clipper Realty

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 0.27 times more return on investment than Clipper Realty. However, AvalonBay Communities is 3.69 times less risky than Clipper Realty. It trades about -0.02 of its potential returns per unit of risk. Clipper Realty is currently generating about -0.04 per unit of risk. If you would invest  21,809  in AvalonBay Communities on December 29, 2024 and sell it today you would lose (451.00) from holding AvalonBay Communities or give up 2.07% of portfolio value over 90 days.

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

AvalonBay Communities  vs.  Clipper Realty

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 somewhat strong basic indicators, AvalonBay Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Clipper Realty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clipper Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with AvalonBay Communities and Clipper Realty

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

The idea behind AvalonBay Communities and Clipper Realty 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.