Correlation Between Oracle and AvalonBay Communities

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

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

Diversification Opportunities for Oracle and AvalonBay Communities

0.62

Correlation Coefficient

Oracle  AvalonBay Communities

Poor diversification

The 3 months correlation between Oracle and AvalonBay is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Oracle 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 Oracle 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 Oracle i.e., Oracle and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Oracle and AvalonBay Communities

Given the investment horizon of 90 days Oracle is expected to under-perform the AvalonBay Communities. In addition to that, Oracle is 2.6 times more volatile than AvalonBay Communities. It trades about -0.07 of its total potential returns per unit of risk. AvalonBay Communities is currently generating about -0.06 per unit of volatility. If you would invest  20,811  in AvalonBay Communities on December 29, 2024 and sell it today you would lose (1,121) from holding AvalonBay Communities or give up 5.39% of portfolio value over 90 days.

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

Oracle  vs.  AvalonBay Communities

Oracle

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oracle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 Oracle and AvalonBay Communities

The main advantage of trading using opposite Oracle and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oracle 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 Oracle 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.