Correlation Between AvalonBay Communities and CVS Health

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

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

Diversification Opportunities for AvalonBay Communities and CVS Health

-0.28

Correlation Coefficient

AvalonBay Communities  CVS Health

Very good diversification

The 3 months correlation between AvalonBay and CVS is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and CVS Health go up and down completely randomly.

Pair Corralation between AvalonBay Communities and CVS Health

Assuming the 90 days trading horizon AvalonBay Communities is expected to generate 0.54 times more return on investment than CVS Health. However, AvalonBay Communities is 1.84 times less risky than CVS Health. It trades about 0.06 of its potential returns per unit of risk. CVS Health is currently generating about -0.05 per unit of risk. If you would invest  32,034  in AvalonBay Communities on September 23, 2024 and sell it today you would earn a total of  1,890  from holding AvalonBay Communities or generate 5.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

AvalonBay Communities  vs.  CVS Health

AvalonBay Communities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AvalonBay Communities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with AvalonBay Communities and CVS Health

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

The idea behind AvalonBay Communities and CVS Health 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.