Correlation Between Realty Income and Farmland Partners

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

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

Diversification Opportunities for Realty Income and Farmland Partners

-0.01

Correlation Coefficient

Realty Income  Farmland Partners

Good diversification

The 3 months correlation between Realty and Farmland is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Farmland Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmland Partners and Realty Income 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 Realty Income 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 Realty Income i.e., Realty Income and Farmland Partners go up and down completely randomly.

Pair Corralation between Realty Income and Farmland Partners

Taking into account the 90-day investment horizon Realty Income is expected to generate 3.49 times less return on investment than Farmland Partners. But when comparing it to its historical volatility, Realty Income is 1.55 times less risky than Farmland Partners. It trades about 0.02 of its potential returns per unit of risk. Farmland Partners is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,137  in Farmland Partners on December 1, 2024 and sell it today you would earn a total of  36.00  from holding Farmland Partners or generate 3.17% return on investment over 90 days.

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

Realty Income  vs.  Farmland Partners

Realty Income

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Realty Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Realty Income is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Farmland Partners

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Farmland Partners are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Realty Income and Farmland Partners

The main advantage of trading using opposite Realty Income and Farmland Partners positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Realty Income 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 Realty Income 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.

Check out your portfolio center.

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.