Correlation Between Empire State and First Industrial

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

Diversification Opportunities for Empire State and First Industrial

0.65

Correlation Coefficient

Empire State  First Industrial

Poor diversification

The 3 months correlation between Empire and First is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and First Industrial Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Industrial Realty 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 First Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Industrial Realty has no effect on the direction of Empire State i.e., Empire State and First Industrial go up and down completely randomly.

Pair Corralation between Empire State and First Industrial

Given the investment horizon of 90 days Empire State Realty is expected to generate 1.28 times more return on investment than First Industrial. However, Empire State is 1.28 times more volatile than First Industrial Realty. It trades about -0.08 of its potential returns per unit of risk. First Industrial Realty is currently generating about -0.12 per unit of risk. If you would invest  1,092  in Empire State Realty on September 27, 2024 and sell it today you would lose (81.00) from holding Empire State Realty or give up 7.42% 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.  First Industrial Realty

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. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

First Industrial Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Industrial Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Empire State and First Industrial

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

The idea behind Empire State Realty and First Industrial 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.