Correlation Between AvalonBay Communities and American Campus

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

Diversification Opportunities for AvalonBay Communities and American Campus

0.44

Correlation Coefficient

AvalonBay Communities  American Campus

Very weak diversification

The 3 months correlation between AvalonBay and American is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities 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 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 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 AvalonBay Communities i.e., AvalonBay Communities and American Campus go up and down completely randomly.

Pair Corralation between AvalonBay Communities and American Campus

If you would invest  18,045  in AvalonBay Communities on January 19, 2024 and sell it today you would earn a total of  40.00  from holding AvalonBay Communities or generate 0.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	4.55%
Values	Daily Returns

AvalonBay Communities  vs.  American Campus Communities

AvalonBay Communities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, AvalonBay Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

American Campus Comm

Risk-Adjusted Performance

0 of 100

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AvalonBay Communities and American Campus

The main advantage of trading using opposite AvalonBay Communities and American Campus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AvalonBay Communities 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 AvalonBay 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.