Correlation Between 5E Advanced and FutureFuel Corp

Can any of the company-specific risk be diversified away by investing in both 5E Advanced and FutureFuel Corp 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 5E Advanced and FutureFuel Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 5E Advanced Materials and FutureFuel Corp, you can compare the effects of market volatilities on 5E Advanced and FutureFuel Corp 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 5E Advanced with a short position of FutureFuel Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of 5E Advanced and FutureFuel Corp.

Diversification Opportunities for 5E Advanced and FutureFuel Corp

0.57

Correlation Coefficient

5E Advanced  FutureFuel Corp

Very weak diversification

The 3 months correlation between FEAM and FutureFuel is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding 5E Advanced Materials and FutureFuel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FutureFuel Corp and 5E Advanced 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 5E Advanced Materials are associated (or correlated) with FutureFuel Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FutureFuel Corp has no effect on the direction of 5E Advanced i.e., 5E Advanced and FutureFuel Corp go up and down completely randomly.

Pair Corralation between 5E Advanced and FutureFuel Corp

Given the investment horizon of 90 days 5E Advanced Materials is expected to under-perform the FutureFuel Corp. In addition to that, 5E Advanced is 1.95 times more volatile than FutureFuel Corp. It trades about -0.02 of its total potential returns per unit of risk. FutureFuel Corp is currently generating about -0.01 per unit of volatility. If you would invest  548.00  in FutureFuel Corp on September 12, 2024 and sell it today you would lose (25.00) from holding FutureFuel Corp or give up 4.56% of portfolio value over 90 days.

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

5E Advanced Materials  vs.  FutureFuel Corp

5E Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 5E Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, 5E Advanced is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

FutureFuel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FutureFuel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FutureFuel Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with 5E Advanced and FutureFuel Corp

The main advantage of trading using opposite 5E Advanced and FutureFuel Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 5E Advanced position performs unexpectedly, FutureFuel Corp 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 FutureFuel Corp will offset losses from the drop in FutureFuel Corp's long position.

The idea behind 5E Advanced Materials and FutureFuel Corp 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.