Correlation Between Alexandria Real and Farmland Partners

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

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

Diversification Opportunities for Alexandria Real and Farmland Partners

-0.15

Correlation Coefficient

Alexandria Real  Farmland Partners

Good diversification

The 3 months correlation between Alexandria and Farmland is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Alexandria Real Estate and Farmland Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmland Partners and Alexandria Real 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 Alexandria Real Estate 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 Alexandria Real i.e., Alexandria Real and Farmland Partners go up and down completely randomly.

Pair Corralation between Alexandria Real and Farmland Partners

Considering the 90-day investment horizon Alexandria Real Estate is expected to generate 0.99 times more return on investment than Farmland Partners. However, Alexandria Real Estate is 1.01 times less risky than Farmland Partners. It trades about 0.0 of its potential returns per unit of risk. Farmland Partners is currently generating about -0.03 per unit of risk. If you would invest  9,648  in Alexandria Real Estate on December 30, 2024 and sell it today you would lose (88.00) from holding Alexandria Real Estate or give up 0.91% of portfolio value over 90 days.

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

Alexandria Real Estate  vs.  Farmland Partners

Alexandria Real Estate

Risk-Adjusted Performance

Very Weak

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

Farmland Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farmland Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Farmland Partners is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Alexandria Real and Farmland Partners

The main advantage of trading using opposite Alexandria Real and Farmland Partners positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alexandria Real 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 Alexandria Real Estate 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.