Correlation Between INVITATION HOMES and AvalonBay Communities

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

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

Diversification Opportunities for INVITATION HOMES and AvalonBay Communities

0.85

Correlation Coefficient

INVITATION HOMES  AvalonBay Communities

Very poor diversification

The 3 months correlation between INVITATION and AvalonBay is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding INVITATION HOMES DL and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and INVITATION HOMES 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 INVITATION HOMES DL 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 INVITATION HOMES i.e., INVITATION HOMES and AvalonBay Communities go up and down completely randomly.

Pair Corralation between INVITATION HOMES and AvalonBay Communities

Assuming the 90 days horizon INVITATION HOMES DL is expected to under-perform the AvalonBay Communities. But the stock apears to be less risky and, when comparing its historical volatility, INVITATION HOMES DL is 1.03 times less risky than AvalonBay Communities. The stock trades about -0.1 of its potential returns per unit of risk. The AvalonBay Communities is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  18,015  in AvalonBay Communities on April 23, 2025 and sell it today you would lose (681.00) from holding AvalonBay Communities or give up 3.78% of portfolio value over 90 days.

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

INVITATION HOMES DL  vs.  AvalonBay Communities

INVITATION HOMES

Risk-Adjusted Performance

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

AvalonBay Communities

Risk-Adjusted Performance

Very Weak

Over the last 90 days AvalonBay Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AvalonBay Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with INVITATION HOMES and AvalonBay Communities

The main advantage of trading using opposite INVITATION HOMES and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INVITATION HOMES 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 INVITATION HOMES DL 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.