Correlation Between DIGITAL and Toro

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

Diversification Opportunities for DIGITAL and Toro

0.21

Correlation Coefficient

DIGITAL  Toro

Modest diversification

The 3 months correlation between DIGITAL and Toro is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding DIGITAL REALTY TRUST and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro and DIGITAL 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 Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of DIGITAL i.e., DIGITAL and Toro go up and down completely randomly.

Pair Corralation between DIGITAL and Toro

Assuming the 90 days trading horizon DIGITAL REALTY TRUST is expected to generate 0.24 times more return on investment than Toro. However, DIGITAL REALTY TRUST is 4.2 times less risky than Toro. It trades about 0.01 of its potential returns per unit of risk. Toro Co is currently generating about -0.01 per unit of risk. If you would invest  8,946  in DIGITAL REALTY TRUST on August 31, 2024 and sell it today you would earn a total of  177.00  from holding DIGITAL REALTY TRUST or generate 1.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

DIGITAL REALTY TRUST  vs.  Toro Co

DIGITAL REALTY TRUST

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DIGITAL REALTY TRUST has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DIGITAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with DIGITAL and Toro

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

The idea behind DIGITAL REALTY TRUST and Toro Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.