Correlation Between Farmland Partners and Digital Realty

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

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

Diversification Opportunities for Farmland Partners and Digital Realty

-0.12

Correlation Coefficient

Farmland Partners  Digital Realty

Good diversification

The 3 months correlation between Farmland and Digital is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Farmland Partners 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 Farmland Partners 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 Farmland Partners 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 Farmland Partners i.e., Farmland Partners and Digital Realty go up and down completely randomly.

Pair Corralation between Farmland Partners and Digital Realty

Considering the 90-day investment horizon Farmland Partners is expected to under-perform the Digital Realty. In addition to that, Farmland Partners is 2.19 times more volatile than Digital Realty Trust. It trades about -0.03 of its total potential returns per unit of risk. Digital Realty Trust is currently generating about 0.04 per unit of volatility. If you would invest  2,299  in Digital Realty Trust on December 30, 2024 and sell it today you would earn a total of  33.00  from holding Digital Realty Trust or generate 1.44% return on investment over 90 days.

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

Farmland Partners  vs.  Digital Realty Trust

Farmland Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farmland Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Farmland Partners is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Digital Realty Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 2 (%) 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.

Pair Trading with Farmland Partners and Digital Realty

The main advantage of trading using opposite Farmland Partners and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmland Partners 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 Farmland Partners 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 Stocks Directory module to find actively traded stocks across global markets.