Correlation Between AvalonBay Communities and Sun Communities

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

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

Diversification Opportunities for AvalonBay Communities and Sun Communities

-0.66

Correlation Coefficient

AvalonBay Communities  Sun Communities

Excellent diversification

The 3 months correlation between AvalonBay and Sun is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Sun Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Communities 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 Sun Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Communities has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Sun Communities go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Sun Communities

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 0.73 times more return on investment than Sun Communities. However, AvalonBay Communities is 1.37 times less risky than Sun Communities. It trades about 0.18 of its potential returns per unit of risk. Sun Communities is currently generating about -0.05 per unit of risk. If you would invest  17,468  in AvalonBay Communities on February 19, 2024 and sell it today you would earn a total of  2,421  from holding AvalonBay Communities or generate 13.86% return on investment over 90 days.

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

AvalonBay Communities  vs.  Sun Communities

AvalonBay Communities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, AvalonBay Communities sustained solid returns over the last few months and may actually be approaching a breakup point.

Sun Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Sun Communities is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with AvalonBay Communities and Sun Communities

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

The idea behind AvalonBay Communities and Sun 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.