Correlation Between Braemar Hotels and Digital Realty

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

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

Diversification Opportunities for Braemar Hotels and Digital Realty

0.29

Correlation Coefficient

Braemar Hotels  Digital Realty

Modest diversification

The 3 months correlation between Braemar and Digital is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Braemar Hotels Resorts 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 Braemar Hotels 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 Braemar Hotels Resorts 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 Braemar Hotels i.e., Braemar Hotels and Digital Realty go up and down completely randomly.

Pair Corralation between Braemar Hotels and Digital Realty

Assuming the 90 days trading horizon Braemar Hotels Resorts is expected to generate 3.12 times more return on investment than Digital Realty. However, Braemar Hotels is 3.12 times more volatile than Digital Realty Trust. It trades about 0.01 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.02 per unit of risk. If you would invest  2,061  in Braemar Hotels Resorts on October 26, 2024 and sell it today you would lose (41.00) from holding Braemar Hotels Resorts or give up 1.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Braemar Hotels Resorts  vs.  Digital Realty Trust

Braemar Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Braemar Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Braemar Hotels is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Digital Realty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Preferred Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Braemar Hotels and Digital Realty

The main advantage of trading using opposite Braemar Hotels and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Braemar Hotels 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 Braemar Hotels Resorts 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.