Correlation Between STAG Industrial, and AvalonBay Communities

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

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

Diversification Opportunities for STAG Industrial, and AvalonBay Communities

0.39

Correlation Coefficient

STAG Industrial,  AvalonBay Communities

Weak diversification

The 3 months correlation between STAG and AvalonBay is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding STAG Industrial, and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and STAG Industrial, 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 STAG Industrial, 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 STAG Industrial, i.e., STAG Industrial, and AvalonBay Communities go up and down completely randomly.

Pair Corralation between STAG Industrial, and AvalonBay Communities

Assuming the 90 days trading horizon STAG Industrial, is expected to generate 0.86 times more return on investment than AvalonBay Communities. However, STAG Industrial, is 1.17 times less risky than AvalonBay Communities. It trades about -0.06 of its potential returns per unit of risk. AvalonBay Communities is currently generating about -0.08 per unit of risk. If you would invest  4,239  in STAG Industrial, on December 25, 2024 and sell it today you would lose (292.00) from holding STAG Industrial, or give up 6.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

STAG Industrial,  vs.  AvalonBay Communities

STAG Industrial,

Risk-Adjusted Performance

Very Weak

Over the last 90 days STAG Industrial, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with STAG Industrial, and AvalonBay Communities

The main advantage of trading using opposite STAG Industrial, and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STAG Industrial, 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 STAG Industrial, 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.