Correlation Between Citigroup and AvalonBay Communities

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

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

Diversification Opportunities for Citigroup and AvalonBay Communities

0.53

Correlation Coefficient

Citigroup  AvalonBay Communities

Very weak diversification

The 3 months correlation between Citigroup and AvalonBay is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Citigroup 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 Citigroup are associated (or correlated) with AvalonBay Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AvalonBay Communities has no effect on the direction of Citigroup i.e., Citigroup and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Citigroup and AvalonBay Communities

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.6 times more return on investment than AvalonBay Communities. However, Citigroup is 1.6 times more volatile than AvalonBay Communities. It trades about 0.01 of its potential returns per unit of risk. AvalonBay Communities is currently generating about -0.06 per unit of risk. If you would invest  6,991  in Citigroup on December 29, 2024 and sell it today you would earn a total of  42.00  from holding Citigroup or generate 0.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.31%
Values	Daily Returns

Citigroup  vs.  AvalonBay Communities

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 nearly stable basic indicators, AvalonBay Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Citigroup and AvalonBay Communities

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

The idea behind Citigroup and AvalonBay Communities 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.