Correlation Between Agree Realty and AvalonBay Communities

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

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

Diversification Opportunities for Agree Realty and AvalonBay Communities

-0.73

Correlation Coefficient

Agree Realty  AvalonBay Communities

Pay attention - limited upside

The 3 months correlation between Agree and AvalonBay is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Agree Realty and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Agree Realty 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 Agree Realty are associated (or correlated) with AvalonBay Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AvalonBay Communities has no effect on the direction of Agree Realty i.e., Agree Realty and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Agree Realty and AvalonBay Communities

Assuming the 90 days trading horizon Agree Realty is expected to under-perform the AvalonBay Communities. But the preferred stock apears to be less risky and, when comparing its historical volatility, Agree Realty is 1.32 times less risky than AvalonBay Communities. The preferred stock trades about -0.33 of its potential returns per unit of risk. The AvalonBay Communities is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  18,132  in AvalonBay Communities on January 30, 2024 and sell it today you would earn a total of  1,013  from holding AvalonBay Communities or generate 5.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Agree Realty  vs.  AvalonBay Communities

Agree Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agree Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

AvalonBay Communities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, AvalonBay Communities may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Agree Realty and AvalonBay Communities

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

The idea behind Agree Realty and AvalonBay 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.