Correlation Between AvalonBay Communities and UDR

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

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

Diversification Opportunities for AvalonBay Communities and UDR

0.86

Correlation Coefficient

AvalonBay Communities  UDR

Very poor diversification

The 3 months correlation between AvalonBay and UDR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and UDR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UDR Inc 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 UDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UDR Inc has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and UDR go up and down completely randomly.

Pair Corralation between AvalonBay Communities and UDR

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 3.8 times less return on investment than UDR. In addition to that, AvalonBay Communities is 1.12 times more volatile than UDR Inc. It trades about 0.09 of its total potential returns per unit of risk. UDR Inc is currently generating about 0.37 per unit of volatility. If you would invest  4,129  in UDR Inc on November 29, 2024 and sell it today you would earn a total of  296.00  from holding UDR Inc or generate 7.17% return on investment over 90 days.

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

AvalonBay Communities  vs.  UDR Inc

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.

UDR Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days UDR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, UDR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with AvalonBay Communities and UDR

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

The idea behind AvalonBay Communities and UDR Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.