Correlation Between Digital Realty and Extra Space
Can any of the company-specific risk be diversified away by investing in both Digital Realty and Extra Space 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 Extra Space 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 Extra Space Storage, you can compare the effects of market volatilities on Digital Realty and Extra Space 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 Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Realty and Extra Space.
Diversification Opportunities for Digital Realty and Extra Space
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Digital and Extra is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Digital Realty i.e., Digital Realty and Extra Space go up and down completely randomly.
Pair Corralation between Digital Realty and Extra Space
Considering the 90-day investment horizon Digital Realty Trust is expected to generate 1.02 times more return on investment than Extra Space. However, Digital Realty is 1.02 times more volatile than Extra Space Storage. It trades about 0.08 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.02 per unit of risk. If you would invest 10,708 in Digital Realty Trust on August 27, 2024 and sell it today you would earn a total of 8,276 from holding Digital Realty Trust or generate 77.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Digital Realty Trust vs. Extra Space Storage
Performance |
| Timeline |
| Digital Realty Trust |
| Extra Space Storage |
Digital Realty and Extra Space Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Digital Realty and Extra Space
The main advantage of trading using opposite Digital Realty and Extra Space positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital Realty position performs unexpectedly, Extra Space 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 Extra Space will offset losses from the drop in Extra Space's long position.| Digital Realty vs. Crown Castle | Digital Realty vs. American Tower Corp | Digital Realty vs. Iron Mountain Incorporated | Digital Realty vs. Hannon Armstrong Sustainable |
| Extra Space vs. CubeSmart | Extra Space vs. National Storage Affiliates | Extra Space vs. Public Storage | Extra Space vs. EastGroup Properties |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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