Correlation Between AvalonBay Communities and Mid-America Apartment

Can any of the company-specific risk be diversified away by investing in both AvalonBay Communities 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 AvalonBay Communities 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 AvalonBay Communities and Mid America Apartment Communities, you can compare the effects of market volatilities on AvalonBay Communities 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 AvalonBay Communities with a short position of Mid-America Apartment. Check out your portfolio center. Please also check ongoing floating volatility patterns of AvalonBay Communities and Mid-America Apartment.

Diversification Opportunities for AvalonBay Communities and Mid-America Apartment

0.59

Correlation Coefficient

AvalonBay Communities  Mid-America Apartment

Very weak diversification

The 3 months correlation between AvalonBay and Mid-America is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities 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 AvalonBay Communities 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 AvalonBay Communities 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 AvalonBay Communities i.e., AvalonBay Communities and Mid-America Apartment go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Mid-America Apartment

Assuming the 90 days horizon AvalonBay Communities is expected to generate 55.24 times less return on investment than Mid-America Apartment. But when comparing it to its historical volatility, AvalonBay Communities is 1.11 times less risky than Mid-America Apartment. It trades about 0.0 of its potential returns per unit of risk. Mid America Apartment Communities is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,028  in Mid America Apartment Communities on December 4, 2024 and sell it today you would earn a total of  1,197  from holding Mid America Apartment Communities or generate 7.97% return on investment over 90 days.

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

AvalonBay Communities  vs.  Mid America Apartment Communit

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Mid America Apartment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mid America Apartment Communities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Mid-America Apartment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with AvalonBay Communities and Mid-America Apartment

The main advantage of trading using opposite AvalonBay Communities and Mid-America Apartment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AvalonBay Communities 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 AvalonBay Communities 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.