Correlation Between Mid America and American Campus

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Can any of the company-specific risk be diversified away by investing in both Mid America and American Campus 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 Mid America and American Campus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid America Apartment Communities and American Campus Communities, you can compare the effects of market volatilities on Mid America and American Campus 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 Mid America with a short position of American Campus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid America and American Campus.

Diversification Opportunities for Mid America and American Campus

-0.19
  Correlation Coefficient

Good diversification

The 3 months correlation between Mid and American is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Mid-America Apartment Communit and American Campus Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Campus Comm and Mid America 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 Mid America Apartment Communities are associated (or correlated) with American Campus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Campus Comm has no effect on the direction of Mid America i.e., Mid America and American Campus go up and down completely randomly.

Pair Corralation between Mid America and American Campus

Considering the 90-day investment horizon Mid America Apartment Communities is expected to under-perform the American Campus. In addition to that, Mid America is 1.11 times more volatile than American Campus Communities. It trades about -0.05 of its total potential returns per unit of risk. American Campus Communities is currently generating about 0.12 per unit of volatility. If you would invest  5,673  in American Campus Communities on December 20, 2023 and sell it today you would earn a total of  869.00  from holding American Campus Communities or generate 15.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy18.62%
ValuesDaily Returns

Mid-America Apartment Communit  vs.  American Campus Communities

 Performance 
       Timeline  
Mid-America Apartment 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Mid America Apartment Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mid America is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
American Campus Comm 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days American Campus Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, American Campus is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Mid America and American Campus Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mid America and American Campus

The main advantage of trading using opposite Mid America and American Campus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid America position performs unexpectedly, American Campus 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 Campus will offset losses from the drop in American Campus' long position.
The idea behind Mid America Apartment Communities and American Campus 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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