Correlation Between Digital Realty and Cairn Homes

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

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

Diversification Opportunities for Digital Realty and Cairn Homes

0.63

Correlation Coefficient

Digital Realty  Cairn Homes

Poor diversification

The 3 months correlation between Digital and Cairn is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Cairn Homes PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cairn Homes PLC and Digital Realty 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 Digital Realty Trust are associated (or correlated) with Cairn Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cairn Homes PLC has no effect on the direction of Digital Realty i.e., Digital Realty and Cairn Homes go up and down completely randomly.

Pair Corralation between Digital Realty and Cairn Homes

Assuming the 90 days trading horizon Digital Realty Trust is expected to under-perform the Cairn Homes. In addition to that, Digital Realty is 1.36 times more volatile than Cairn Homes PLC. It trades about -0.1 of its total potential returns per unit of risk. Cairn Homes PLC is currently generating about -0.09 per unit of volatility. If you would invest  19,280  in Cairn Homes PLC on December 22, 2024 and sell it today you would lose (1,840) from holding Cairn Homes PLC or give up 9.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Digital Realty Trust  vs.  Cairn Homes PLC

Digital Realty Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital Realty Trust 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 April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Cairn Homes PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cairn Homes PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Digital Realty and Cairn Homes

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

The idea behind Digital Realty Trust and Cairn Homes PLC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.