Correlation Between Digital Realty and Japan Real

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

Diversification Opportunities for Digital Realty and Japan Real

0.32

Correlation Coefficient

Digital Realty  Japan Real

Weak diversification

The 3 months correlation between Digital and Japan is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Japan Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Real Estate 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 Japan Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Real Estate has no effect on the direction of Digital Realty i.e., Digital Realty and Japan Real go up and down completely randomly.

Pair Corralation between Digital Realty and Japan Real

Assuming the 90 days horizon Digital Realty Trust is expected to generate 1.54 times more return on investment than Japan Real. However, Digital Realty is 1.54 times more volatile than Japan Real Estate. It trades about 0.12 of its potential returns per unit of risk. Japan Real Estate is currently generating about -0.01 per unit of risk. If you would invest  13,977  in Digital Realty Trust on April 25, 2025 and sell it today you would earn a total of  1,181  from holding Digital Realty Trust or generate 8.45% return on investment over 90 days.

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

Digital Realty Trust  vs.  Japan Real Estate

Digital Realty Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Digital Realty may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Japan Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Digital Realty and Japan Real

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

The idea behind Digital Realty Trust and Japan Real Estate 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.