Correlation Between Piedmont Office and Empire State

Can any of the company-specific risk be diversified away by investing in both Piedmont Office and Empire State 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 Piedmont Office and Empire State into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Piedmont Office Realty and Empire State Realty, you can compare the effects of market volatilities on Piedmont Office and Empire State 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 Piedmont Office with a short position of Empire State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Piedmont Office and Empire State.

Diversification Opportunities for Piedmont Office and Empire State

0.71

Correlation Coefficient

Piedmont Office  Empire State

Poor diversification

The 3 months correlation between Piedmont and Empire is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Office Realty and Empire State Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire State Realty and Piedmont Office 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 Piedmont Office Realty are associated (or correlated) with Empire State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire State Realty has no effect on the direction of Piedmont Office i.e., Piedmont Office and Empire State go up and down completely randomly.

Pair Corralation between Piedmont Office and Empire State

Considering the 90-day investment horizon Piedmont Office Realty is expected to generate 1.11 times more return on investment than Empire State. However, Piedmont Office is 1.11 times more volatile than Empire State Realty. It trades about 0.09 of its potential returns per unit of risk. Empire State Realty is currently generating about -0.11 per unit of risk. If you would invest  852.00  in Piedmont Office Realty on October 20, 2024 and sell it today you would earn a total of  30.00  from holding Piedmont Office Realty or generate 3.52% return on investment over 90 days.

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

Piedmont Office Realty  vs.  Empire State Realty

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 unsteady performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Empire State Realty

Risk-Adjusted Performance

0 of 100

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 fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Piedmont Office and Empire State

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

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