Correlation Between AvalonBay Communities and Realty Income

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

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

Diversification Opportunities for AvalonBay Communities and Realty Income

0.07

Correlation Coefficient

AvalonBay Communities  Realty Income

Significant diversification

The 3 months correlation between AvalonBay and Realty is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income 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 Realty Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Realty Income has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Realty Income go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Realty Income

Considering the 90-day investment horizon AvalonBay Communities is expected to under-perform the Realty Income. But the stock apears to be less risky and, when comparing its historical volatility, AvalonBay Communities is 1.01 times less risky than Realty Income. The stock trades about -0.02 of its potential returns per unit of risk. The Realty Income is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,197  in Realty Income on December 28, 2024 and sell it today you would earn a total of  464.00  from holding Realty Income or generate 8.93% return on investment over 90 days.

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

AvalonBay Communities  vs.  Realty Income

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.

Realty Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Realty Income are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Realty Income may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with AvalonBay Communities and Realty Income

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

The idea behind AvalonBay Communities and Realty Income 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.