Correlation Between Digital Realty and Power REIT

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

Diversification Opportunities for Digital Realty and Power REIT

-0.42

Correlation Coefficient

Digital Realty  Power REIT

Very good diversification

The 3 months correlation between Digital and Power is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Power REIT PFD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power REIT PFD 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 Power REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power REIT PFD has no effect on the direction of Digital Realty i.e., Digital Realty and Power REIT go up and down completely randomly.

Pair Corralation between Digital Realty and Power REIT

Assuming the 90 days trading horizon Digital Realty Trust is expected to under-perform the Power REIT. But the preferred stock apears to be less risky and, when comparing its historical volatility, Digital Realty Trust is 11.38 times less risky than Power REIT. The preferred stock trades about -0.11 of its potential returns per unit of risk. The Power REIT PFD is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  350.00  in Power REIT PFD on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Power REIT PFD or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.8%
Values	Daily Returns

Digital Realty Trust  vs.  Power REIT PFD

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. Even with relatively steady basic indicators, Digital Realty is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Power REIT PFD

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT PFD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Power REIT sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital Realty and Power REIT

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

The idea behind Digital Realty Trust and Power REIT PFD 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.