Correlation Between COPT Defense and Empire State

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

By analyzing existing cross correlation between COPT Defense Properties and Empire State Realty, you can compare the effects of market volatilities on COPT Defense and Empire State 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 COPT Defense with a short position of Empire State. Check out your portfolio center. Please also check ongoing floating volatility patterns of COPT Defense and Empire State.

Diversification Opportunities for COPT Defense and Empire State

0.56

Correlation Coefficient

COPT Defense  Empire State

Very weak diversification

The 3 months correlation between COPT and Empire is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding COPT Defense Properties and Empire State Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire State Realty and COPT Defense 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 COPT Defense Properties are associated (or correlated) with Empire State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire State Realty has no effect on the direction of COPT Defense i.e., COPT Defense and Empire State go up and down completely randomly.

Pair Corralation between COPT Defense and Empire State

Considering the 90-day investment horizon COPT Defense is expected to generate 1.09 times less return on investment than Empire State. But when comparing it to its historical volatility, COPT Defense Properties is 2.47 times less risky than Empire State. It trades about 0.16 of its potential returns per unit of risk. Empire State Realty is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  994.00  in Empire State Realty on September 12, 2024 and sell it today you would earn a total of  94.00  from holding Empire State Realty or generate 9.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.63%
Values	Daily Returns

COPT Defense Properties  vs.  Empire State Realty

COPT Defense Properties

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COPT Defense Properties are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, COPT Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Empire State Realty

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Empire State may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with COPT Defense and Empire State

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

The idea behind COPT Defense Properties and Empire State Realty 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.