Correlation Between Ametek and Digital Realty

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

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

Diversification Opportunities for Ametek and Digital Realty

0.84

Correlation Coefficient

Ametek  Digital Realty

Very poor diversification

The 3 months correlation between Ametek and Digital is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ametek 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 Ametek 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 Ametek 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 Ametek i.e., Ametek and Digital Realty go up and down completely randomly.

Pair Corralation between Ametek and Digital Realty

Assuming the 90 days trading horizon Ametek is expected to generate 1.69 times less return on investment than Digital Realty. But when comparing it to its historical volatility, Ametek Inc is 1.05 times less risky than Digital Realty. It trades about 0.07 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  16,046  in Digital Realty Trust on September 27, 2024 and sell it today you would earn a total of  1,904  from holding Digital Realty Trust or generate 11.87% return on investment over 90 days.

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

Ametek Inc  vs.  Digital Realty Trust

Ametek Inc

Risk-Adjusted Performance

5 of 100

Modest

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

Digital Realty Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Digital Realty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ametek and Digital Realty

The main advantage of trading using opposite Ametek and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ametek 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 Ametek 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.