Correlation Between Empire State and Invitation Homes

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

Diversification Opportunities for Empire State and Invitation Homes

0.72

Correlation Coefficient

Empire State  Invitation Homes

Poor diversification

The 3 months correlation between Empire and Invitation is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Invitation Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invitation Homes 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 Invitation Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invitation Homes has no effect on the direction of Empire State i.e., Empire State and Invitation Homes go up and down completely randomly.

Pair Corralation between Empire State and Invitation Homes

Given the investment horizon of 90 days Empire State Realty is expected to under-perform the Invitation Homes. In addition to that, Empire State is 2.78 times more volatile than Invitation Homes. It trades about -0.12 of its total potential returns per unit of risk. Invitation Homes is currently generating about -0.08 per unit of volatility. If you would invest  3,395  in Invitation Homes on November 28, 2024 and sell it today you would lose (185.00) from holding Invitation Homes or give up 5.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.38%
Values	Daily Returns

Empire State Realty  vs.  Invitation Homes

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. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Invitation Homes

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Empire State and Invitation Homes

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

The idea behind Empire State Realty and Invitation Homes 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.