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 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

0.01

Correlation Coefficient

City Office  Empire State

Significant diversification

The 3 months correlation between City and Empire is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding City Office 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 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

Considering the 90-day investment horizon City Office is expected to generate 1.28 times more return on investment than Empire State. However, City Office is 1.28 times more volatile than Empire State Realty. It trades about 0.33 of its potential returns per unit of risk. Empire State Realty is currently generating about -0.03 per unit of risk. If you would invest  501.00  in City Office on September 13, 2024 and sell it today you would earn a total of  81.00  from holding City Office or generate 16.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

City Office  vs.  Empire State Realty

City Office

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Office has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, City Office is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Empire State Realty

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, 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 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.