Correlation Between AvalonBay Communities and Veris Residential

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

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

Diversification Opportunities for AvalonBay Communities and Veris Residential

0.88

Correlation Coefficient

AvalonBay Communities  Veris Residential

Very poor diversification

The 3 months correlation between AvalonBay and Veris is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Veris Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veris Residential 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 Veris Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veris Residential has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Veris Residential go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Veris Residential

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 2.88 times less return on investment than Veris Residential. But when comparing it to its historical volatility, AvalonBay Communities is 1.57 times less risky than Veris Residential. It trades about 0.13 of its potential returns per unit of risk. Veris Residential is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,594  in Veris Residential on December 2, 2024 and sell it today you would earn a total of  99.00  from holding Veris Residential or generate 6.21% 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.  Veris Residential

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.

Veris Residential

Risk-Adjusted Performance

Very Weak

Over the last 90 days Veris Residential has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Veris Residential is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AvalonBay Communities and Veris Residential

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

The idea behind AvalonBay Communities and Veris Residential 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.