Correlation Between Fundo Investimento and AvalonBay Communities

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

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

Diversification Opportunities for Fundo Investimento and AvalonBay Communities

-0.61

Correlation Coefficient

Fundo Investimento  AvalonBay Communities

Excellent diversification

The 3 months correlation between Fundo and AvalonBay is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Fundo Investimento Imobiliario and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Fundo Investimento 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 Fundo Investimento Imobiliario 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 Fundo Investimento i.e., Fundo Investimento and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Fundo Investimento and AvalonBay Communities

Assuming the 90 days trading horizon Fundo Investimento Imobiliario is expected to under-perform the AvalonBay Communities. But the fund apears to be less risky and, when comparing its historical volatility, Fundo Investimento Imobiliario is 1.14 times less risky than AvalonBay Communities. The fund trades about -0.03 of its potential returns per unit of risk. The AvalonBay Communities is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  29,884  in AvalonBay Communities on October 6, 2024 and sell it today you would earn a total of  3,466  from holding AvalonBay Communities or generate 11.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Fundo Investimento Imobiliario  vs.  AvalonBay Communities

Fundo Investimento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fundo Investimento Imobiliario has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong essential indicators, Fundo Investimento is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AvalonBay Communities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AvalonBay Communities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fundo Investimento and AvalonBay Communities

The main advantage of trading using opposite Fundo Investimento and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundo Investimento 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 Fundo Investimento Imobiliario 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.