Correlation Between Digital Realty and Crown Castle

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

Diversification Opportunities for Digital Realty and Crown Castle

0.23

Correlation Coefficient

Digital Realty  Crown Castle

Modest diversification

The 3 months correlation between Digital and Crown is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Crown Castle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crown Castle 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 Crown Castle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crown Castle has no effect on the direction of Digital Realty i.e., Digital Realty and Crown Castle go up and down completely randomly.

Pair Corralation between Digital Realty and Crown Castle

Assuming the 90 days trading horizon Digital Realty Trust is expected to under-perform the Crown Castle. But the preferred stock apears to be less risky and, when comparing its historical volatility, Digital Realty Trust is 2.57 times less risky than Crown Castle. The preferred stock trades about -0.22 of its potential returns per unit of risk. The Crown Castle is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,781  in Crown Castle on August 31, 2024 and sell it today you would lose (111.00) from holding Crown Castle or give up 1.03% of portfolio value over 90 days.

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

Digital Realty Trust  vs.  Crown Castle

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 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.

Crown Castle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Crown Castle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Crown Castle is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Digital Realty and Crown Castle

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

The idea behind Digital Realty Trust and Crown Castle 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 Commodity Directory module to find actively traded commodities issued by global exchanges.