Correlation Between UDR and AvalonBay Communities

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

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

Diversification Opportunities for UDR and AvalonBay Communities

0.81

Correlation Coefficient

UDR  AvalonBay Communities

Very poor diversification

The 3 months correlation between UDR and AvalonBay is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding UDR Inc and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities 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 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 UDR i.e., UDR and AvalonBay Communities go up and down completely randomly.

Pair Corralation between UDR and AvalonBay Communities

Assuming the 90 days horizon UDR Inc is expected to generate 0.99 times more return on investment than AvalonBay Communities. However, UDR Inc is 1.01 times less risky than AvalonBay Communities. It trades about 0.03 of its potential returns per unit of risk. AvalonBay Communities is currently generating about -0.02 per unit of risk. If you would invest  4,269  in UDR Inc on December 2, 2024 and sell it today you would earn a total of  69.00  from holding UDR Inc or generate 1.62% return on investment over 90 days.

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

UDR Inc  vs.  AvalonBay Communities

UDR Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UDR Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, UDR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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 UDR and AvalonBay Communities

The main advantage of trading using opposite UDR and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UDR 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 UDR Inc 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.