Correlation Between Charter Communications and Digital Realty

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

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

Diversification Opportunities for Charter Communications and Digital Realty

0.87

Correlation Coefficient

Charter Communications  Digital Realty

Very poor diversification

The 3 months correlation between Charter and Digital is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications 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 Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Digital Realty go up and down completely randomly.

Pair Corralation between Charter Communications and Digital Realty

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the Digital Realty. In addition to that, Charter Communications is 1.8 times more volatile than Digital Realty Trust. It trades about -0.14 of its total potential returns per unit of risk. Digital Realty Trust is currently generating about -0.06 per unit of volatility. If you would invest  17,420  in Digital Realty Trust on September 21, 2024 and sell it today you would lose (388.00) from holding Digital Realty Trust or give up 2.23% of portfolio value over 90 days.

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

Charter Communications  vs.  Digital Realty Trust

Charter Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Charter Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Digital Realty Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Digital Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charter Communications and Digital Realty

The main advantage of trading using opposite Charter Communications and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.