Correlation Between American Tower and Digital Realty

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

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

Diversification Opportunities for American Tower and Digital Realty

0.61

Correlation Coefficient

American Tower  Digital Realty

Poor diversification

The 3 months correlation between American and Digital is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding American Tower Corp 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 American Tower 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 American Tower Corp 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 American Tower i.e., American Tower and Digital Realty go up and down completely randomly.

Pair Corralation between American Tower and Digital Realty

Considering the 90-day investment horizon American Tower is expected to generate 2.15 times less return on investment than Digital Realty. But when comparing it to its historical volatility, American Tower Corp is 1.05 times less risky than Digital Realty. It trades about 0.04 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,617  in Digital Realty Trust on January 30, 2024 and sell it today you would earn a total of  2,666  from holding Digital Realty Trust or generate 22.95% return on investment over 90 days.

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

American Tower Corp  vs.  Digital Realty Trust

American Tower Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

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. Even with relatively invariable essential indicators, Digital Realty is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Tower and Digital Realty

The main advantage of trading using opposite American Tower and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Tower 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 American Tower Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.