Correlation Between City Office and Empire State

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

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

Diversification Opportunities for City Office and Empire State

0.15

Correlation Coefficient

City Office  Empire State

Average diversification

The 3 months correlation between City and Empire is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding City Office REIT 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 City Office 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 City Office REIT 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 City Office i.e., City Office and Empire State go up and down completely randomly.

Pair Corralation between City Office and Empire State

Assuming the 90 days trading horizon City Office is expected to generate 2.28 times less return on investment than Empire State. But when comparing it to its historical volatility, City Office REIT is 2.26 times less risky than Empire State. It trades about 0.06 of its potential returns per unit of risk. Empire State Realty is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,031  in Empire State Realty on September 15, 2024 and sell it today you would earn a total of  75.00  from holding Empire State Realty or generate 7.27% return on investment over 90 days.

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

City Office REIT  vs.  Empire State Realty

City Office REIT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Office REIT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, City Office is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Empire State Realty

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 4 (%) 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 City Office and Empire State

The main advantage of trading using opposite City Office and Empire State positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Office 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 City Office REIT 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.