Correlation Between AvalonBay Communities and CareTrust REIT
Can any of the company-specific risk be diversified away by investing in both AvalonBay Communities and CareTrust REIT 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 CareTrust REIT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AvalonBay Communities and CareTrust REIT, you can compare the effects of market volatilities on AvalonBay Communities and CareTrust REIT 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 CareTrust REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of AvalonBay Communities and CareTrust REIT.
Diversification Opportunities for AvalonBay Communities and CareTrust REIT
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AvalonBay and CareTrust is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding AvalonBay Communities and CareTrust REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CareTrust REIT 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 CareTrust REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CareTrust REIT has no effect on the direction of AvalonBay Communities i.e., AvalonBay Communities and CareTrust REIT go up and down completely randomly.
Pair Corralation between AvalonBay Communities and CareTrust REIT
Considering the 90-day investment horizon AvalonBay Communities is expected to generate 2.53 times less return on investment than CareTrust REIT. But when comparing it to its historical volatility, AvalonBay Communities is 1.06 times less risky than CareTrust REIT. It trades about 0.11 of its potential returns per unit of risk. CareTrust REIT is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 2,017 in CareTrust REIT on February 2, 2024 and sell it today you would earn a total of 500.00 from holding CareTrust REIT or generate 24.79% 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. CareTrust REIT
Performance |
Timeline |
AvalonBay Communities |
CareTrust REIT |
AvalonBay Communities and CareTrust REIT Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with AvalonBay Communities and CareTrust REIT
The main advantage of trading using opposite AvalonBay Communities and CareTrust REIT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AvalonBay Communities position performs unexpectedly, CareTrust REIT 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 CareTrust REIT will offset losses from the drop in CareTrust REIT's long position.AvalonBay Communities vs. Essex Property Trust | AvalonBay Communities vs. UDR Inc | AvalonBay Communities vs. Mid America Apartment Communities | AvalonBay Communities vs. Camden Property Trust |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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