Correlation Between Walmart and AvalonBay Communities

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

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

Diversification Opportunities for Walmart and AvalonBay Communities

0.89

Correlation Coefficient

Walmart  AvalonBay Communities

Very poor diversification

The 3 months correlation between Walmart and AvalonBay is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and Walmart 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 Walmart 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 Walmart i.e., Walmart and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Walmart and AvalonBay Communities

Assuming the 90 days trading horizon Walmart is expected to generate 0.83 times more return on investment than AvalonBay Communities. However, Walmart is 1.2 times less risky than AvalonBay Communities. It trades about 0.24 of its potential returns per unit of risk. AvalonBay Communities is currently generating about 0.06 per unit of risk. If you would invest  2,786  in Walmart on September 23, 2024 and sell it today you would earn a total of  700.00  from holding Walmart or generate 25.13% return on investment over 90 days.

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

Walmart  vs.  AvalonBay Communities

Walmart

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Walmart sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Walmart and AvalonBay Communities

The main advantage of trading using opposite Walmart and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.