Correlation Between Empire State and National Bankshares

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

Diversification Opportunities for Empire State and National Bankshares

0.66

Correlation Coefficient

Empire State  National Bankshares

Poor diversification

The 3 months correlation between Empire and National is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares 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 National Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bankshares has no effect on the direction of Empire State i.e., Empire State and National Bankshares go up and down completely randomly.

Pair Corralation between Empire State and National Bankshares

Given the investment horizon of 90 days Empire State Realty is expected to under-perform the National Bankshares. But the stock apears to be less risky and, when comparing its historical volatility, Empire State Realty is 1.12 times less risky than National Bankshares. The stock trades about -0.23 of its potential returns per unit of risk. The National Bankshares is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,873  in National Bankshares on December 29, 2024 and sell it today you would lose (165.00) from holding National Bankshares or give up 5.74% 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.  National Bankshares

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.

National Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, National Bankshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Empire State and National Bankshares

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

The idea behind Empire State Realty and National Bankshares 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.