Correlation Between Digital Realty and Toyota

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

Diversification Opportunities for Digital Realty and Toyota

-0.28

Correlation Coefficient

Digital Realty  Toyota

Very good diversification

The 3 months correlation between Digital and Toyota is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Toyota Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor Corp 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 Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor Corp has no effect on the direction of Digital Realty i.e., Digital Realty and Toyota go up and down completely randomly.

Pair Corralation between Digital Realty and Toyota

Assuming the 90 days trading horizon Digital Realty Trust is expected to under-perform the Toyota. But the stock apears to be less risky and, when comparing its historical volatility, Digital Realty Trust is 1.12 times less risky than Toyota. The stock trades about -0.16 of its potential returns per unit of risk. The Toyota Motor Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  255,150  in Toyota Motor Corp on November 29, 2024 and sell it today you would earn a total of  14,850  from holding Toyota Motor Corp or generate 5.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Digital Realty Trust  vs.  Toyota Motor Corp

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 March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Toyota Motor Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Digital Realty and Toyota

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

The idea behind Digital Realty Trust and Toyota Motor Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.