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, 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

-0.52

Correlation Coefficient

Digital Realty  Power REIT

Excellent diversification

The 3 months correlation between Digital and Power is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Power REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power REIT 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 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 generate 0.15 times more return on investment than Power REIT. However, Digital Realty Trust is 6.73 times less risky than Power REIT. It trades about 0.04 of its potential returns per unit of risk. Power REIT is currently generating about -0.03 per unit of risk. If you would invest  2,336  in Digital Realty Trust on December 25, 2024 and sell it today you would earn a total of  36.00  from holding Digital Realty Trust or generate 1.54% return on investment over 90 days.

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

Digital Realty Trust  vs.  Power REIT

Digital Realty Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 3 (%) 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.

Power REIT

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

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 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.