Correlation Between Crown Castle and Digital Realty

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

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

Diversification Opportunities for Crown Castle and Digital Realty

0.37

Correlation Coefficient

Crown Castle  Digital Realty

Weak diversification

The 3 months correlation between Crown and Digital is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Crown Castle 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 Crown Castle 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 Crown Castle 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 Crown Castle i.e., Crown Castle and Digital Realty go up and down completely randomly.

Pair Corralation between Crown Castle and Digital Realty

Considering the 90-day investment horizon Crown Castle is expected to generate 2.91 times more return on investment than Digital Realty. However, Crown Castle is 2.91 times more volatile than Digital Realty Trust. It trades about 0.13 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.04 per unit of risk. If you would invest  8,830  in Crown Castle on December 29, 2024 and sell it today you would earn a total of  1,429  from holding Crown Castle or generate 16.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Crown Castle  vs.  Digital Realty Trust

Crown Castle

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crown Castle are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Crown Castle demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Digital Realty Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Digital Realty is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Crown Castle and Digital Realty

The main advantage of trading using opposite Crown Castle and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crown Castle 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 Crown Castle 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.