How Correlated Are Tower Stocks And Telecoms?

Clearly, the business of cell tower REITs like American Tower Corp AMT and Crown Castle International Corp CCI is closely tied to telecom companies like AT&T Inc. T and Verizon Communications Inc. VZ, so it stands to reason that the stocks must also tend to trade in similar directions. Right?

So far in 2016, that idea has not proven true. Verizon and AT&T have become top gainers so far this year, surging more than 12 percent in the first two months of the year and leaving Crown Castle (+2.0 percent) and American Tower (-4.9 percent) in the dust.

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According to data from Portfolio Visualizer, both American Tower and Crown Castle have between 41 and 43 percent correlation to both Verizon and AT&T during the past five years. Although that correlation is relatively strong, it appears to have broken down a bit so far in 2016.

Correlation Is Stronger To REIT Kin Vs. Telecom Cousins

American Tower and Crown Castle, have an even stronger correlation to their REIT cousins than to the big telecoms, which could go a long way in explaining why the two REITs have lagged AT&T and Verizon this year.

In the past five years, American Tower and Crown Castle have 65 percent and 56 percent correlations to the iShares Dow Jones US Real Estate (ETF) IYR. So far this year, the IYR is down 1.4 percent.

Disclosure: The author holds no position in the stocks mentioned.