Correlation Between UDR and Mid-America Apartment

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

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

Diversification Opportunities for UDR and Mid-America Apartment

0.74

Correlation Coefficient

UDR  Mid-America Apartment

Poor diversification

The 3 months correlation between UDR and Mid-America is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding UDR Inc and Mid America Apartment Communit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid America Apartment and UDR 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 UDR Inc are associated (or correlated) with Mid-America Apartment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid America Apartment has no effect on the direction of UDR i.e., UDR and Mid-America Apartment go up and down completely randomly.

Pair Corralation between UDR and Mid-America Apartment

Assuming the 90 days horizon UDR Inc is expected to under-perform the Mid-America Apartment. But the stock apears to be less risky and, when comparing its historical volatility, UDR Inc is 1.04 times less risky than Mid-America Apartment. The stock trades about -0.01 of its potential returns per unit of risk. The Mid America Apartment Communities is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  14,603  in Mid America Apartment Communities on December 26, 2024 and sell it today you would earn a total of  507.00  from holding Mid America Apartment Communities or generate 3.47% return on investment over 90 days.

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

UDR Inc  vs.  Mid America Apartment Communit

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

Mid America Apartment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mid America Apartment Communities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Mid-America Apartment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UDR and Mid-America Apartment

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

The idea behind UDR Inc and Mid America Apartment 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.