Correlation Between Digital Realty and Extra Space

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

Diversification Opportunities for Digital Realty and Extra Space

0.7

Correlation Coefficient

Digital Realty  Extra Space

Poor diversification

The 3 months correlation between Digital and Extra is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Digital Realty Trust and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Digital Realty i.e., Digital Realty and Extra Space go up and down completely randomly.

Pair Corralation between Digital Realty and Extra Space

Considering the 90-day investment horizon Digital Realty Trust is expected to generate 0.78 times more return on investment than Extra Space. However, Digital Realty Trust is 1.28 times less risky than Extra Space. It trades about 0.14 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.02 per unit of risk. If you would invest  16,341  in Digital Realty Trust on May 2, 2025 and sell it today you would earn a total of  1,389  from holding Digital Realty Trust or generate 8.5% return on investment over 90 days.

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

Digital Realty Trust  vs.  Extra Space Storage

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 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Digital Realty may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Extra Space Storage

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Extra Space Storage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Extra Space is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Digital Realty and Extra Space

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

The idea behind Digital Realty Trust and Extra Space Storage 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.