Correlation Between Empire State and Real Estate

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

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

Diversification Opportunities for Empire State and Real Estate

0.68

Correlation Coefficient

Empire State  Real Estate

Poor diversification

The 3 months correlation between Empire and Real is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Real Estate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate Fund and Empire State 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 Empire State Realty are associated (or correlated) with Real Estate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Estate Fund has no effect on the direction of Empire State i.e., Empire State and Real Estate go up and down completely randomly.

Pair Corralation between Empire State and Real Estate

Given the investment horizon of 90 days Empire State Realty is expected to under-perform the Real Estate. In addition to that, Empire State is 1.85 times more volatile than Real Estate Fund. It trades about -0.27 of its total potential returns per unit of risk. Real Estate Fund is currently generating about -0.31 per unit of volatility. If you would invest  2,756  in Real Estate Fund on October 10, 2024 and sell it today you would lose (209.00) from holding Real Estate Fund or give up 7.58% of portfolio value over 90 days.

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

Empire State Realty  vs.  Real Estate Fund

Empire State Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire State Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Real Estate Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Estate Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Empire State and Real Estate

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

The idea behind Empire State Realty and Real Estate Fund 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.