Correlation Between Empire State and Ethena

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

Diversification Opportunities for Empire State and Ethena

0.34

Correlation Coefficient

Empire State  Ethena

Weak diversification

The 3 months correlation between Empire and Ethena is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Ethena in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethena 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 Ethena. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethena has no effect on the direction of Empire State i.e., Empire State and Ethena go up and down completely randomly.

Pair Corralation between Empire State and Ethena

Given the investment horizon of 90 days Empire State is expected to generate 37.46 times less return on investment than Ethena. But when comparing it to its historical volatility, Empire State Realty is 7.25 times less risky than Ethena. It trades about 0.04 of its potential returns per unit of risk. Ethena is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Ethena on August 30, 2024 and sell it today you would earn a total of  47.00  from holding Ethena or generate 195.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Empire State Realty  vs.  Ethena

Empire State Realty

Risk-Adjusted Performance

3 of 100

Modest

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. In spite of comparatively stable basic indicators, Empire State is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Ethena

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ethena are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ethena exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire State and Ethena

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

The idea behind Empire State Realty and Ethena 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.