Correlation Between AvalonBay Communities and KeyCorp

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

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

Diversification Opportunities for AvalonBay Communities and KeyCorp

0.75

Correlation Coefficient

AvalonBay Communities  KeyCorp

Poor diversification

The 3 months correlation between AvalonBay and KeyCorp is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and KeyCorp go up and down completely randomly.

Pair Corralation between AvalonBay Communities and KeyCorp

Assuming the 90 days trading horizon AvalonBay Communities is expected to generate 1.27 times more return on investment than KeyCorp. However, AvalonBay Communities is 1.27 times more volatile than KeyCorp. It trades about 0.01 of its potential returns per unit of risk. KeyCorp is currently generating about -0.15 per unit of risk. If you would invest  33,935  in AvalonBay Communities on September 25, 2024 and sell it today you would lose (11.00) from holding AvalonBay Communities or give up 0.03% of portfolio value over 90 days.

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

AvalonBay Communities  vs.  KeyCorp

AvalonBay Communities

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AvalonBay Communities are ranked lower than 5 (%) 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.

KeyCorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KeyCorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, KeyCorp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AvalonBay Communities and KeyCorp

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

The idea behind AvalonBay Communities and KeyCorp 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 Anywhere module to track or share privately all of your investments from the convenience of any device.