Correlation Between Empire State and AvalonBay Communities

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

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

Diversification Opportunities for Empire State and AvalonBay Communities

-0.33

Correlation Coefficient

Empire State  AvalonBay Communities

Very good diversification

The 3 months correlation between Empire and AvalonBay is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Empire State 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 Empire State 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 Empire State i.e., Empire State and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Empire State and AvalonBay Communities

Given the investment horizon of 90 days Empire State Realty is expected to under-perform the AvalonBay Communities. In addition to that, Empire State is 2.59 times more volatile than AvalonBay Communities. It trades about -0.04 of its total potential returns per unit of risk. AvalonBay Communities is currently generating about 0.1 per unit of volatility. If you would invest  18,449  in AvalonBay Communities on March 13, 2024 and sell it today you would earn a total of  1,271  from holding AvalonBay Communities or generate 6.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Empire State Realty  vs.  AvalonBay Communities

Empire State Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire State Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers 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

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 7 (%) 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 July 2024.

Pair Trading with Empire State and AvalonBay Communities

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

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.