Correlation Between Empire State and Piedmont Office

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

Diversification Opportunities for Empire State and Piedmont Office

0.2

Correlation Coefficient

Empire State  Piedmont Office

Modest diversification

The 3 months correlation between Empire and Piedmont is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Piedmont Office Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piedmont Office Realty 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 Piedmont Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piedmont Office Realty has no effect on the direction of Empire State i.e., Empire State and Piedmont Office go up and down completely randomly.

Pair Corralation between Empire State and Piedmont Office

Given the investment horizon of 90 days Empire State Realty is expected to generate 1.62 times more return on investment than Piedmont Office. However, Empire State is 1.62 times more volatile than Piedmont Office Realty. It trades about 0.06 of its potential returns per unit of risk. Piedmont Office Realty is currently generating about -0.04 per unit of risk. 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	Very Weak
Accuracy	90.63%
Values	Daily Returns

Empire State Realty  vs.  Piedmont Office Realty

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.

Piedmont Office Realty

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Empire State and Piedmont Office

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

The idea behind Empire State Realty and Piedmont Office 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.