Correlation Between AvalonBay Communities and Chatham Lodging

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

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

Diversification Opportunities for AvalonBay Communities and Chatham Lodging

-0.83

Correlation Coefficient

AvalonBay Communities  Chatham Lodging

Pay attention - limited upside

The 3 months correlation between AvalonBay and Chatham is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Lodging Trust 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 Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and Chatham Lodging go up and down completely randomly.

Pair Corralation between AvalonBay Communities and Chatham Lodging

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 0.71 times more return on investment than Chatham Lodging. However, AvalonBay Communities is 1.4 times less risky than Chatham Lodging. It trades about 0.01 of its potential returns per unit of risk. Chatham Lodging Trust is currently generating about -0.03 per unit of risk. If you would invest  18,657  in AvalonBay Communities on February 26, 2024 and sell it today you would earn a total of  877.00  from holding AvalonBay Communities or generate 4.7% return on investment over 90 days.

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

AvalonBay Communities  vs.  Chatham Lodging Trust

AvalonBay Communities

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 13 (%) 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.

Chatham Lodging Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chatham Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with AvalonBay Communities and Chatham Lodging

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

The idea behind AvalonBay Communities and Chatham Lodging Trust 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.