Correlation Between AvalonBay Communities and SL Green

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

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

Diversification Opportunities for AvalonBay Communities and SL Green

0.65

Correlation Coefficient

AvalonBay Communities  SL Green

Poor diversification

The 3 months correlation between AvalonBay and SLG is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and SL Green Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SL Green Realty 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 SL Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SL Green Realty has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and SL Green go up and down completely randomly.

Pair Corralation between AvalonBay Communities and SL Green

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 0.44 times more return on investment than SL Green. However, AvalonBay Communities is 2.28 times less risky than SL Green. It trades about 0.18 of its potential returns per unit of risk. SL Green Realty is currently generating about 0.07 per unit of risk. If you would invest  17,199  in AvalonBay Communities on February 26, 2024 and sell it today you would earn a total of  2,335  from holding AvalonBay Communities or generate 13.58% 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.  SL Green Realty

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.

SL Green Realty

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SL Green Realty are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, SL Green may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with AvalonBay Communities and SL Green

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

The idea behind AvalonBay Communities and SL Green Realty 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.