Correlation Between Empire State and XYO

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

Diversification Opportunities for Empire State and XYO

0.37

Correlation Coefficient

Empire State  XYO

Weak diversification

The 3 months correlation between Empire and XYO is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and XYO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XYO 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 XYO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XYO has no effect on the direction of Empire State i.e., Empire State and XYO go up and down completely randomly.

Pair Corralation between Empire State and XYO

Given the investment horizon of 90 days Empire State is expected to generate 25.87 times less return on investment than XYO. But when comparing it to its historical volatility, Empire State Realty is 8.17 times less risky than XYO. It trades about 0.04 of its potential returns per unit of risk. XYO is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.49  in XYO on August 30, 2024 and sell it today you would earn a total of  0.44  from holding XYO or generate 90.49% 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.  XYO

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.

XYO

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XYO are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XYO exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire State and XYO

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

The idea behind Empire State Realty and XYO 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.