Correlation Between SBA Communications and Farmland Partners

Can any of the company-specific risk be diversified away by investing in both SBA Communications and Farmland Partners 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 SBA Communications and Farmland Partners into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SBA Communications Corp and Farmland Partners, you can compare the effects of market volatilities on SBA Communications and Farmland Partners 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 SBA Communications with a short position of Farmland Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBA Communications and Farmland Partners.

Diversification Opportunities for SBA Communications and Farmland Partners

-0.68

Correlation Coefficient

SBA Communications  Farmland Partners

Excellent diversification

The 3 months correlation between SBA and Farmland is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding SBA Communications Corp and Farmland Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmland Partners and SBA 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 SBA Communications Corp are associated (or correlated) with Farmland Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmland Partners has no effect on the direction of SBA Communications i.e., SBA Communications and Farmland Partners go up and down completely randomly.

Pair Corralation between SBA Communications and Farmland Partners

Given the investment horizon of 90 days SBA Communications Corp is expected to under-perform the Farmland Partners. But the stock apears to be less risky and, when comparing its historical volatility, SBA Communications Corp is 1.12 times less risky than Farmland Partners. The stock trades about -0.01 of its potential returns per unit of risk. The Farmland Partners is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,012  in Farmland Partners on September 3, 2024 and sell it today you would earn a total of  259.00  from holding Farmland Partners or generate 25.59% return on investment over 90 days.

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

SBA Communications Corp  vs.  Farmland Partners

SBA Communications Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Farmland Partners

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Farmland Partners are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Farmland Partners demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SBA Communications and Farmland Partners

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

The idea behind SBA Communications Corp and Farmland Partners 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.