Correlation Between Digital Realty and M/I Homes

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

Diversification Opportunities for Digital Realty and M/I Homes

0.02

Correlation Coefficient

Digital Realty  M/I Homes

Significant diversification

The 3 months correlation between Digital and M/I is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M/I Homes 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 M/I Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M/I Homes has no effect on the direction of Digital Realty i.e., Digital Realty and M/I Homes go up and down completely randomly.

Pair Corralation between Digital Realty and M/I Homes

Assuming the 90 days horizon Digital Realty is expected to generate 1.82 times less return on investment than M/I Homes. But when comparing it to its historical volatility, Digital Realty Trust is 1.26 times less risky than M/I Homes. It trades about 0.08 of its potential returns per unit of risk. MI Homes is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,220  in MI Homes on September 19, 2024 and sell it today you would earn a total of  10,175  from holding MI Homes or generate 241.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Digital Realty Trust  vs.  MI Homes

Digital Realty Trust

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Digital Realty reported solid returns over the last few months and may actually be approaching a breakup point.

M/I Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, M/I Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Digital Realty and M/I Homes

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

The idea behind Digital Realty Trust and MI Homes 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.