Correlation Between AvalonBay Communities and American Homes
Can any of the company-specific risk be diversified away by investing in both AvalonBay Communities and American Homes 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 American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AvalonBay Communities and American Homes 4, you can compare the effects of market volatilities on AvalonBay Communities and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of AvalonBay Communities and American Homes.
Diversification Opportunities for AvalonBay Communities and American Homes
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AvalonBay and American is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and American Homes go up and down completely randomly.
Pair Corralation between AvalonBay Communities and American Homes
Considering the 90-day investment horizon AvalonBay Communities is expected to generate 1.0 times more return on investment than American Homes. However, AvalonBay Communities is 1.0 times less risky than American Homes. It trades about 0.01 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.01 per unit of risk. If you would invest 18,192 in AvalonBay Communities on January 25, 2024 and sell it today you would earn a total of 945.00 from holding AvalonBay Communities or generate 5.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AvalonBay Communities vs. American Homes 4
Performance |
| Timeline |
| AvalonBay Communities |
| American Homes 4 |
AvalonBay Communities and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AvalonBay Communities and American Homes
The main advantage of trading using opposite AvalonBay Communities and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AvalonBay Communities position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.| AvalonBay Communities vs. Essex Property Trust | AvalonBay Communities vs. UDR Inc | AvalonBay Communities vs. Mid America Apartment Communities | AvalonBay Communities vs. Camden Property Trust |
| American Homes vs. Sun Communities | American Homes vs. Clipper Realty | American Homes vs. UDR Inc | American Homes vs. UMH Properties |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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