Correlation Between AVALONBAY and Air Products

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

By analyzing existing cross correlation between AVALONBAY CMNTYS INC and Air Products and, you can compare the effects of market volatilities on AVALONBAY and Air Products 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 with a short position of Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of AVALONBAY and Air Products.

Diversification Opportunities for AVALONBAY and Air Products

-0.35

Correlation Coefficient

AVALONBAY  Air Products

Very good diversification

The 3 months correlation between AVALONBAY and Air is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding AVALONBAY CMNTYS INC and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and AVALONBAY 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 CMNTYS INC are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of AVALONBAY i.e., AVALONBAY and Air Products go up and down completely randomly.

Pair Corralation between AVALONBAY and Air Products

Assuming the 90 days trading horizon AVALONBAY CMNTYS INC is expected to under-perform the Air Products. But the bond apears to be less risky and, when comparing its historical volatility, AVALONBAY CMNTYS INC is 1.63 times less risky than Air Products. The bond trades about -0.05 of its potential returns per unit of risk. The Air Products and is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  27,836  in Air Products and on September 12, 2024 and sell it today you would earn a total of  3,685  from holding Air Products and or generate 13.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

AVALONBAY CMNTYS INC  vs.  Air Products and

AVALONBAY CMNTYS INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AVALONBAY CMNTYS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AVALONBAY is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Air Products

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AVALONBAY and Air Products

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

The idea behind AVALONBAY CMNTYS INC and Air Products and 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.