Correlation Between Empire State and Hudson Pacific

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

Diversification Opportunities for Empire State and Hudson Pacific

0.51

Correlation Coefficient

Empire State  Hudson Pacific

Very weak diversification

The 3 months correlation between Empire and Hudson is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Hudson Pacific Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hudson Pacific Properties 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 Hudson Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hudson Pacific Properties has no effect on the direction of Empire State i.e., Empire State and Hudson Pacific go up and down completely randomly.

Pair Corralation between Empire State and Hudson Pacific

Given the investment horizon of 90 days Empire State Realty is expected to generate 0.81 times more return on investment than Hudson Pacific. However, Empire State Realty is 1.23 times less risky than Hudson Pacific. It trades about -0.02 of its potential returns per unit of risk. Hudson Pacific Properties is currently generating about -0.13 per unit of risk. If you would invest  978.00  in Empire State Realty on February 26, 2024 and sell it today you would lose (53.00) from holding Empire State Realty or give up 5.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.31%
Values	Daily Returns

Empire State Realty  vs.  Hudson Pacific Properties

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. Despite somewhat strong fundamental drivers, Empire State is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hudson Pacific Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hudson Pacific Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Empire State and Hudson Pacific

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

The idea behind Empire State Realty and Hudson Pacific Properties 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 Global Correlations module to find global opportunities by holding instruments from different markets.