Correlation Between AvalonBay Communities and Regency Centers

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

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

Diversification Opportunities for AvalonBay Communities and Regency Centers

0.66

Correlation Coefficient

AvalonBay Communities  Regency Centers

Poor diversification

The 3 months correlation between AvalonBay and Regency is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Regency Centers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regency Centers 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 Regency Centers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regency Centers has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Regency Centers go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Regency Centers

Considering the 90-day investment horizon AvalonBay Communities is expected to under-perform the Regency Centers. But the stock apears to be less risky and, when comparing its historical volatility, AvalonBay Communities is 1.07 times less risky than Regency Centers. The stock trades about -0.02 of its potential returns per unit of risk. The Regency Centers is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,271  in Regency Centers on December 29, 2024 and sell it today you would earn a total of  16.00  from holding Regency Centers or generate 0.22% return on investment over 90 days.

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

AvalonBay Communities  vs.  Regency Centers

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.

Regency Centers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regency Centers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Regency Centers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AvalonBay Communities and Regency Centers

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

The idea behind AvalonBay Communities and Regency Centers 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.