Correlation Between Digital Realty and Dollar Tree

Can any of the company-specific risk be diversified away by investing in both Digital Realty and Dollar Tree 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 Dollar Tree 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 Dollar Tree, you can compare the effects of market volatilities on Digital Realty and Dollar Tree 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 Dollar Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Realty and Dollar Tree.

Diversification Opportunities for Digital Realty and Dollar Tree

-0.41

Correlation Coefficient

Digital Realty  Dollar Tree

Very good diversification

The 3 months correlation between Digital and Dollar is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree 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 Dollar Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar Tree has no effect on the direction of Digital Realty i.e., Digital Realty and Dollar Tree go up and down completely randomly.

Pair Corralation between Digital Realty and Dollar Tree

Assuming the 90 days trading horizon Digital Realty Trust is expected to generate 0.4 times more return on investment than Dollar Tree. However, Digital Realty Trust is 2.5 times less risky than Dollar Tree. It trades about 0.25 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.03 per unit of risk. If you would invest  14,991  in Digital Realty Trust on September 2, 2024 and sell it today you would earn a total of  4,772  from holding Digital Realty Trust or generate 31.83% return on investment over 90 days.

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

Digital Realty Trust  vs.  Dollar Tree

Digital Realty Trust

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Digital Realty unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dollar Tree

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dollar Tree has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Digital Realty and Dollar Tree

The main advantage of trading using opposite Digital Realty and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital Realty position performs unexpectedly, Dollar Tree 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 Dollar Tree will offset losses from the drop in Dollar Tree's long position.

The idea behind Digital Realty Trust and Dollar Tree 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.