Correlation Between Empire State and Brandywine Realty

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

Diversification Opportunities for Empire State and Brandywine Realty

0.43

Correlation Coefficient

Empire State  Brandywine Realty

Very weak diversification

The 3 months correlation between Empire and Brandywine is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Brandywine Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandywine Realty Trust 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 Brandywine Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandywine Realty Trust has no effect on the direction of Empire State i.e., Empire State and Brandywine Realty go up and down completely randomly.

Pair Corralation between Empire State and Brandywine Realty

Given the investment horizon of 90 days Empire State Realty is expected to under-perform the Brandywine Realty. But the stock apears to be less risky and, when comparing its historical volatility, Empire State Realty is 1.02 times less risky than Brandywine Realty. The stock trades about -0.04 of its potential returns per unit of risk. The Brandywine Realty Trust is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  522.00  in Brandywine Realty Trust on September 15, 2024 and sell it today you would earn a total of  40.00  from holding Brandywine Realty Trust or generate 7.66% return on investment over 90 days.

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

Empire State Realty  vs.  Brandywine Realty Trust

Empire State Realty

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Empire State may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brandywine Realty Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brandywine Realty Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Brandywine Realty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Empire State and Brandywine Realty

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

The idea behind Empire State Realty and Brandywine Realty Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.