Correlation Between Digital Realty and Armada Hoffler

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

Diversification Opportunities for Digital Realty and Armada Hoffler

0.81

Correlation Coefficient

Digital Realty  Armada Hoffler

Very poor diversification

The 3 months correlation between Digital and Armada is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Armada Hoffler Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Hoffler Properties 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 Armada Hoffler. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Hoffler Properties has no effect on the direction of Digital Realty i.e., Digital Realty and Armada Hoffler go up and down completely randomly.

Pair Corralation between Digital Realty and Armada Hoffler

Assuming the 90 days trading horizon Digital Realty Trust is expected to under-perform the Armada Hoffler. But the preferred stock apears to be less risky and, when comparing its historical volatility, Digital Realty Trust is 1.3 times less risky than Armada Hoffler. The preferred stock trades about -0.25 of its potential returns per unit of risk. The Armada Hoffler Properties is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  2,317  in Armada Hoffler Properties on October 12, 2024 and sell it today you would lose (97.00) from holding Armada Hoffler Properties or give up 4.19% of portfolio value over 90 days.

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

Digital Realty Trust  vs.  Armada Hoffler Properties

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 latest sluggish performance, the Preferred Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Armada Hoffler Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Hoffler Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Digital Realty and Armada Hoffler

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

The idea behind Digital Realty Trust and Armada Hoffler Properties 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.