Correlation Between Iron Mountain and Digital Realty

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

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

Diversification Opportunities for Iron Mountain and Digital Realty

0.51

Correlation Coefficient

Iron Mountain  Digital Realty

Very weak diversification

The 3 months correlation between Iron and Digital is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Iron Mountain Incorporated 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 Iron Mountain 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 Iron Mountain Incorporated 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 Iron Mountain i.e., Iron Mountain and Digital Realty go up and down completely randomly.

Pair Corralation between Iron Mountain and Digital Realty

Considering the 90-day investment horizon Iron Mountain is expected to generate 2.48 times less return on investment than Digital Realty. In addition to that, Iron Mountain is 1.08 times more volatile than Digital Realty Trust. It trades about 0.1 of its total potential returns per unit of risk. Digital Realty Trust is currently generating about 0.26 per unit of volatility. If you would invest  14,865  in Digital Realty Trust on August 31, 2024 and sell it today you would earn a total of  4,663  from holding Digital Realty Trust or generate 31.37% return on investment over 90 days.

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

Iron Mountain Incorporated  vs.  Digital Realty Trust

Iron Mountain

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Iron Mountain Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Iron Mountain may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Digital Realty Trust

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Digital Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iron Mountain and Digital Realty

The main advantage of trading using opposite Iron Mountain and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Mountain 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 Iron Mountain Incorporated 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 Anywhere module to track or share privately all of your investments from the convenience of any device.