Correlation Between Empire State and First Trust

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

Diversification Opportunities for Empire State and First Trust

-0.62

Correlation Coefficient

Empire State  First Trust

Excellent diversification

The 3 months correlation between Empire and First is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Indxx has no effect on the direction of Empire State i.e., Empire State and First Trust go up and down completely randomly.

Pair Corralation between Empire State and First Trust

Given the investment horizon of 90 days Empire State Realty is expected to under-perform the First Trust. In addition to that, Empire State is 1.95 times more volatile than First Trust Indxx. It trades about -0.23 of its total potential returns per unit of risk. First Trust Indxx is currently generating about 0.09 per unit of volatility. If you would invest  4,646  in First Trust Indxx on December 28, 2024 and sell it today you would earn a total of  216.00  from holding First Trust Indxx or generate 4.65% return on investment over 90 days.

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

Empire State Realty  vs.  First Trust Indxx

Empire State Realty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Empire State Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

First Trust Indxx

Risk-Adjusted Performance

Modest

Over the last 90 days First Trust Indxx has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Empire State and First Trust

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

The idea behind Empire State Realty and First Trust Indxx 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.