Correlation Between Empire State and First Trust
Can any of the company-specific risk be diversified away by investing in both Empire State and First Trust 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 Trust 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 Trust SMID, you can compare the effects of market volatilities on Empire State and First Trust 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 Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire State and First Trust.
Diversification Opportunities for Empire State and First Trust
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Empire and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust SMID has no effect on the direction of Empire State i.e., Empire State and First Trust go up and down completely randomly.
Pair Corralation between Empire State and First Trust
Given the investment horizon of 90 days Empire State is expected to generate 4.3 times less return on investment than First Trust. In addition to that, Empire State is 1.13 times more volatile than First Trust SMID. It trades about 0.05 of its total potential returns per unit of risk. First Trust SMID is currently generating about 0.27 per unit of volatility. If you would invest 1,972 in First Trust SMID on September 1, 2024 and sell it today you would earn a total of 469.00 from holding First Trust SMID or generate 23.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 31.91% |
| Values | Daily Returns |
Empire State Realty vs. First Trust SMID
Performance |
| Timeline |
| Empire State Realty |
| First Trust SMID |
Empire State and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Empire State and First Trust
The main advantage of trading using opposite Empire State and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empire State position performs unexpectedly, First Trust 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 Trust will offset losses from the drop in First Trust's long position.| Empire State vs. Paramount Group | Empire State vs. Hudson Pacific Properties | Empire State vs. Equity Commonwealth | Empire State vs. Douglas Emmett |
| First Trust vs. Brompton Global Dividend | First Trust vs. Global Healthcare Income | First Trust vs. Tech Leaders Income | First Trust vs. Brompton North American |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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