Correlation Between Retail Opportunity and AvalonBay Communities

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

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

Diversification Opportunities for Retail Opportunity and AvalonBay Communities

-0.6

Correlation Coefficient

Retail Opportunity  AvalonBay Communities

Excellent diversification

The 3 months correlation between Retail and AvalonBay is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Retail Opportunity Investments and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Retail Opportunity 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 Retail Opportunity Investments 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 Retail Opportunity i.e., Retail Opportunity and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Retail Opportunity and AvalonBay Communities

Given the investment horizon of 90 days Retail Opportunity Investments is expected to under-perform the AvalonBay Communities. In addition to that, Retail Opportunity is 1.16 times more volatile than AvalonBay Communities. It trades about -0.02 of its total potential returns per unit of risk. AvalonBay Communities is currently generating about 0.01 per unit of volatility. If you would invest  18,963  in AvalonBay Communities on February 1, 2024 and sell it today you would lose (6.00) from holding AvalonBay Communities or give up 0.03% of portfolio value over 90 days.

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

Retail Opportunity Investments  vs.  AvalonBay Communities

Retail Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Opportunity Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 June 2024.

Pair Trading with Retail Opportunity and AvalonBay Communities

The main advantage of trading using opposite Retail Opportunity and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retail Opportunity 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 Retail Opportunity Investments 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.