Correlation Between Entravision Communications and Digital Realty

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

Diversification Opportunities for Entravision Communications and Digital Realty

0.88

Correlation Coefficient

Entravision Communications  Digital Realty

Very poor diversification

The 3 months correlation between Entravision and Digital is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Entravision 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 Entravision 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 Entravision 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 Entravision Communications i.e., Entravision Communications and Digital Realty go up and down completely randomly.

Pair Corralation between Entravision Communications and Digital Realty

Assuming the 90 days horizon Entravision Communications is expected to generate 2.77 times more return on investment than Digital Realty. However, Entravision Communications is 2.77 times more volatile than Digital Realty Trust. It trades about 0.13 of its potential returns per unit of risk. Digital Realty Trust is currently generating about -0.06 per unit of risk. If you would invest  215.00  in Entravision Communications on September 21, 2024 and sell it today you would earn a total of  21.00  from holding Entravision Communications or generate 9.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Entravision Communications  vs.  Digital Realty Trust

Entravision Communications

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Entravision Communications reported 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 Entravision Communications and Digital Realty

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

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.