Correlation Between Amazon and Digital Realty
Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and Digital Realty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Digital Realty Trust, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of Digital Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Digital Realty.
Diversification Opportunities for Amazon and Digital Realty
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Amazon and Digital is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc 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 Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Digital Realty go up and down completely randomly.
Pair Corralation between Amazon and Digital Realty
Given the investment horizon of 90 days Amazon Inc is expected to generate 1.34 times more return on investment than Digital Realty. However, Amazon is 1.34 times more volatile than Digital Realty Trust. It trades about 0.23 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.17 per unit of risk. If you would invest 20,684 in Amazon Inc on September 12, 2024 and sell it today you would earn a total of 1,820 from holding Amazon Inc or generate 8.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Amazon Inc vs. Digital Realty Trust
Performance |
| Timeline |
| Amazon Inc |
| Digital Realty Trust |
Amazon and Digital Realty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Digital Realty
The main advantage of trading using opposite Amazon and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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.| Digital Realty vs. ORIX JREIT INC | Digital Realty vs. Superior Plus Corp | Digital Realty vs. SIVERS SEMICONDUCTORS AB | Digital Realty vs. Norsk Hydro ASA |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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