Correlation Between Empire State and SAN

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

Diversification Opportunities for Empire State and SAN

0.24

Correlation Coefficient

Empire State  SAN

Modest diversification

The 3 months correlation between Empire and SAN is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and SAN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAN 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 SAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAN has no effect on the direction of Empire State i.e., Empire State and SAN go up and down completely randomly.

Pair Corralation between Empire State and SAN

Given the investment horizon of 90 days Empire State is expected to generate 11.51 times less return on investment than SAN. But when comparing it to its historical volatility, Empire State Realty is 2.79 times less risky than SAN. It trades about 0.04 of its potential returns per unit of risk. SAN is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3.02  in SAN on August 30, 2024 and sell it today you would earn a total of  1.37  from holding SAN or generate 45.36% 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.  SAN

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.

SAN

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAN are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SAN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire State and SAN

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

The idea behind Empire State Realty and SAN 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.