Correlation Between AvalonBay Communities and UMH Properties

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

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

Diversification Opportunities for AvalonBay Communities and UMH Properties

0.64

Correlation Coefficient

AvalonBay Communities  UMH Properties

Poor diversification

The 3 months correlation between AvalonBay and UMH is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and UMH Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMH Properties 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 UMH Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMH Properties has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and UMH Properties go up and down completely randomly.

Pair Corralation between AvalonBay Communities and UMH Properties

Considering the 90-day investment horizon AvalonBay Communities is expected to generate 0.99 times more return on investment than UMH Properties. However, AvalonBay Communities is 1.01 times less risky than UMH Properties. It trades about 0.06 of its potential returns per unit of risk. UMH Properties is currently generating about 0.01 per unit of risk. If you would invest  22,543  in AvalonBay Communities on September 2, 2024 and sell it today you would earn a total of  992.00  from holding AvalonBay Communities or generate 4.4% 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.  UMH Properties

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 strong basic indicators, AvalonBay Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

UMH Properties

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UMH Properties are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, UMH Properties is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with AvalonBay Communities and UMH Properties

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

The idea behind AvalonBay Communities and UMH Properties 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.