Correlation Between Digital Realty and Japan Real

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

Diversification Opportunities for Digital Realty and Japan Real

-0.35

Correlation Coefficient

Digital Realty  Japan Real

Very good diversification

The 3 months correlation between Digital and Japan is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Japan Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Real Estate 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 Japan Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Real Estate has no effect on the direction of Digital Realty i.e., Digital Realty and Japan Real go up and down completely randomly.

Pair Corralation between Digital Realty and Japan Real

Assuming the 90 days horizon Digital Realty Trust is expected to under-perform the Japan Real. In addition to that, Digital Realty is 1.6 times more volatile than Japan Real Estate. It trades about -0.16 of its total potential returns per unit of risk. Japan Real Estate is currently generating about 0.08 per unit of volatility. If you would invest  62,589  in Japan Real Estate on December 30, 2024 and sell it today you would earn a total of  3,911  from holding Japan Real Estate or generate 6.25% return on investment over 90 days.

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

Digital Realty Trust  vs.  Japan Real Estate

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Japan Real Estate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Real Estate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Japan Real may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Digital Realty and Japan Real

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

The idea behind Digital Realty Trust and Japan Real Estate 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.