Correlation Between Digital Realty and CTO Realty

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

Diversification Opportunities for Digital Realty and CTO Realty

0.28

Correlation Coefficient

Digital Realty  CTO Realty

Modest diversification

The 3 months correlation between Digital and CTO is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and CTO Realty Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTO Realty Growth 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 CTO Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTO Realty Growth has no effect on the direction of Digital Realty i.e., Digital Realty and CTO Realty go up and down completely randomly.

Pair Corralation between Digital Realty and CTO Realty

Assuming the 90 days trading horizon Digital Realty Trust is expected to under-perform the CTO Realty. But the preferred stock apears to be less risky and, when comparing its historical volatility, Digital Realty Trust is 1.29 times less risky than CTO Realty. The preferred stock trades about -0.04 of its potential returns per unit of risk. The CTO Realty Growth is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,172  in CTO Realty Growth on December 20, 2024 and sell it today you would lose (2.00) from holding CTO Realty Growth or give up 0.09% 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.  CTO Realty Growth

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.

CTO Realty Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Digital Realty and CTO Realty

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

The idea behind Digital Realty Trust and CTO Realty Growth 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.