Correlation Between AvalonBay Communities and St Joe

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

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

Diversification Opportunities for AvalonBay Communities and St Joe

0.36

Correlation Coefficient

AvalonBay Communities  St Joe

Weak diversification

The 3 months correlation between AvalonBay and JOE is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and St Joe Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on St Joe Company 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 St Joe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of St Joe Company has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and St Joe go up and down completely randomly.

Pair Corralation between AvalonBay Communities and St Joe

Considering the 90-day investment horizon AvalonBay Communities is expected to under-perform the St Joe. But the stock apears to be less risky and, when comparing its historical volatility, AvalonBay Communities is 1.25 times less risky than St Joe. The stock trades about -0.03 of its potential returns per unit of risk. The St Joe Company is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,467  in St Joe Company on December 28, 2024 and sell it today you would earn a total of  226.00  from holding St Joe Company or generate 5.06% return on investment over 90 days.

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

AvalonBay Communities  vs.  St Joe Company

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.

St Joe Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in St Joe Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, St Joe is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AvalonBay Communities and St Joe

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

The idea behind AvalonBay Communities and St Joe Company 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.