Correlation Between Digital Realty and Agree Realty

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

Diversification Opportunities for Digital Realty and Agree Realty

0.71

Correlation Coefficient

Digital Realty  Agree Realty

Poor diversification

The 3 months correlation between Digital and Agree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Agree Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agree Realty 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 Agree Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agree Realty has no effect on the direction of Digital Realty i.e., Digital Realty and Agree Realty go up and down completely randomly.

Pair Corralation between Digital Realty and Agree Realty

Assuming the 90 days trading horizon Digital Realty Trust is expected to generate 1.03 times more return on investment than Agree Realty. However, Digital Realty is 1.03 times more volatile than Agree Realty. It trades about -0.05 of its potential returns per unit of risk. Agree Realty is currently generating about -0.08 per unit of risk. If you would invest  2,108  in Digital Realty Trust on December 30, 2024 and sell it today you would lose (65.00) from holding Digital Realty Trust or give up 3.08% of portfolio value over 90 days.

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

Digital Realty Trust  vs.  Agree Realty

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. Despite quite persistent basic indicators, Digital Realty is not utilizing all of its potentials. The new stock price mess, may contribute to short-term losses for the institutional investors.

Agree Realty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agree Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Agree Realty is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Digital Realty and Agree Realty

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

The idea behind Digital Realty Trust and Agree Realty 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.