Correlation Between Empire State and Franklin Street

Can any of the company-specific risk be diversified away by investing in both Empire State and Franklin Street 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 Franklin Street 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 Franklin Street Properties, you can compare the effects of market volatilities on Empire State and Franklin Street 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 Franklin Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire State and Franklin Street.

Diversification Opportunities for Empire State and Franklin Street

0.12

Correlation Coefficient

Empire State  Franklin Street

Average diversification

The 3 months correlation between Empire and Franklin is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Franklin Street Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Street Prop 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 Franklin Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Street Prop has no effect on the direction of Empire State i.e., Empire State and Franklin Street go up and down completely randomly.

Pair Corralation between Empire State and Franklin Street

Given the investment horizon of 90 days Empire State Realty is expected to generate 23.87 times more return on investment than Franklin Street. However, Empire State is 23.87 times more volatile than Franklin Street Properties. It trades about 0.06 of its potential returns per unit of risk. Franklin Street Properties is currently generating about -0.02 per unit of risk. If you would invest  941.00  in Empire State Realty on September 15, 2024 and sell it today you would earn a total of  165.00  from holding Empire State Realty or generate 17.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.53%
Values	Daily Returns

Empire State Realty  vs.  Franklin Street Properties

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.

Franklin Street Prop

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Street Properties are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Franklin Street reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire State and Franklin Street

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

The idea behind Empire State Realty and Franklin Street Properties 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.