Correlation Between Empire State and ICU Medical

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

Diversification Opportunities for Empire State and ICU Medical

0.49

Correlation Coefficient

Empire State  ICU Medical

Very weak diversification

The 3 months correlation between Empire and ICU is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and ICU Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICU Medical 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 ICU Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICU Medical has no effect on the direction of Empire State i.e., Empire State and ICU Medical go up and down completely randomly.

Pair Corralation between Empire State and ICU Medical

Given the investment horizon of 90 days Empire State Realty is expected to generate 0.77 times more return on investment than ICU Medical. However, Empire State Realty is 1.29 times less risky than ICU Medical. It trades about 0.04 of its potential returns per unit of risk. ICU Medical is currently generating about -0.02 per unit of risk. If you would invest  1,075  in Empire State Realty on August 30, 2024 and sell it today you would earn a total of  33.00  from holding Empire State Realty or generate 3.07% 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.  ICU Medical

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. 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.

ICU Medical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Empire State and ICU Medical

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

The idea behind Empire State Realty and ICU Medical 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.