Correlation Between Douglas Emmett and Empire State

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

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

Diversification Opportunities for Douglas Emmett and Empire State

-0.07

Correlation Coefficient

Douglas Emmett  Empire State

Good diversification

The 3 months correlation between Douglas and Empire is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Emmett 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 Douglas Emmett 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 Douglas Emmett 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 Douglas Emmett i.e., Douglas Emmett and Empire State go up and down completely randomly.

Pair Corralation between Douglas Emmett and Empire State

Considering the 90-day investment horizon Douglas Emmett is expected to generate 0.59 times more return on investment than Empire State. However, Douglas Emmett is 1.71 times less risky than Empire State. It trades about 0.18 of its potential returns per unit of risk. Empire State Realty is currently generating about 0.06 per unit of risk. If you would invest  1,673  in Douglas Emmett on September 14, 2024 and sell it today you would earn a total of  324.00  from holding Douglas Emmett or generate 19.37% return on investment over 90 days.

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

Douglas Emmett  vs.  Empire State Realty

Douglas Emmett

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Emmett are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Douglas Emmett demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 Douglas Emmett and Empire State

The main advantage of trading using opposite Douglas Emmett and Empire State positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Douglas Emmett 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 Douglas Emmett 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.