Correlation Between Power REIT and Digital Realty

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

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

Diversification Opportunities for Power REIT and Digital Realty

-0.42

Correlation Coefficient

Power REIT  Digital Realty

Very good diversification

The 3 months correlation between Power and Digital is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Power REIT PFD 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 Power REIT 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 Power REIT PFD 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 Power REIT i.e., Power REIT and Digital Realty go up and down completely randomly.

Pair Corralation between Power REIT and Digital Realty

Assuming the 90 days horizon Power REIT PFD is expected to generate 11.38 times more return on investment than Digital Realty. However, Power REIT is 11.38 times more volatile than Digital Realty Trust. It trades about 0.05 of its potential returns per unit of risk. Digital Realty Trust is currently generating about -0.11 per unit of risk. If you would invest  350.00  in Power REIT PFD on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Power REIT PFD or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.8%
Values	Daily Returns

Power REIT PFD  vs.  Digital Realty Trust

Power REIT PFD

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT PFD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Power REIT sustained solid returns over the last few months and may actually be approaching a breakup point.

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. Even with relatively steady basic indicators, Digital Realty is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Power REIT and Digital Realty

The main advantage of trading using opposite Power REIT and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power REIT 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 Power REIT PFD 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.