Correlation Between AES Corp and Digital Realty

Can any of the company-specific risk be diversified away by investing in both AES Corp and Digital Realty 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 AES Corp and Digital Realty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AES Corp and Digital Realty Trust, you can compare the effects of market volatilities on AES Corp and Digital Realty 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 AES Corp with a short position of Digital Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES Corp and Digital Realty.

Diversification Opportunities for AES Corp and Digital Realty

-0.89

Correlation Coefficient

AES Corp  Digital Realty

Pay attention - limited upside

The 3 months correlation between AES and Digital is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding AES Corp and Digital Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Realty Trust and AES Corp 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 AES Corp are associated (or correlated) with Digital Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Realty Trust has no effect on the direction of AES Corp i.e., AES Corp and Digital Realty go up and down completely randomly.

Pair Corralation between AES Corp and Digital Realty

Assuming the 90 days trading horizon AES Corp is expected to under-perform the Digital Realty. In addition to that, AES Corp is 1.19 times more volatile than Digital Realty Trust. It trades about -0.05 of its total potential returns per unit of risk. Digital Realty Trust is currently generating about 0.08 per unit of volatility. If you would invest  9,423  in Digital Realty Trust on September 23, 2024 and sell it today you would earn a total of  8,643  from holding Digital Realty Trust or generate 91.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

AES Corp  vs.  Digital Realty Trust

AES Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AES Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Digital Realty Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Digital Realty unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AES Corp and Digital Realty

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

The idea behind AES Corp and Digital Realty Trust 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.