Correlation Between EPR Properties and Digital Realty

Can any of the company-specific risk be diversified away by investing in both EPR Properties and Digital 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 EPR Properties and Digital Realty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EPR Properties and Digital Realty Trust, you can compare the effects of market volatilities on EPR Properties and Digital 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 EPR Properties with a short position of Digital Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of EPR Properties and Digital Realty.

Diversification Opportunities for EPR Properties and Digital Realty

0.06

Correlation Coefficient

EPR Properties  Digital Realty

Significant diversification

The 3 months correlation between EPR and Digital is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding EPR Properties and Digital Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Realty Trust and EPR Properties 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 EPR Properties are associated (or correlated) with Digital Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Realty Trust has no effect on the direction of EPR Properties i.e., EPR Properties and Digital Realty go up and down completely randomly.

Pair Corralation between EPR Properties and Digital Realty

Assuming the 90 days trading horizon EPR Properties is expected to generate 1.34 times more return on investment than Digital Realty. However, EPR Properties is 1.34 times more volatile than Digital Realty Trust. It trades about 0.15 of its potential returns per unit of risk. Digital Realty Trust is currently generating about -0.01 per unit of risk. If you would invest  2,109  in EPR Properties on November 29, 2024 and sell it today you would earn a total of  196.00  from holding EPR Properties or generate 9.29% return on investment over 90 days.

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

EPR Properties  vs.  Digital Realty Trust

EPR Properties

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EPR Properties are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, EPR Properties may actually be approaching a critical reversion point that can send shares even higher in March 2025.

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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with EPR Properties and Digital Realty

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

The idea behind EPR Properties and Digital Realty Trust 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.