Correlation Between FutureFuel Corp and Albemarle Corp

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

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

Diversification Opportunities for FutureFuel Corp and Albemarle Corp

-0.42

Correlation Coefficient

FutureFuel Corp  Albemarle Corp

Very good diversification

The 3 months correlation between FutureFuel and Albemarle is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Albemarle Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle Corp and FutureFuel Corp 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 FutureFuel Corp are associated (or correlated) with Albemarle Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle Corp has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Albemarle Corp go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Albemarle Corp

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to under-perform the Albemarle Corp. But the stock apears to be less risky and, when comparing its historical volatility, FutureFuel Corp is 1.2 times less risky than Albemarle Corp. The stock trades about -0.01 of its potential returns per unit of risk. The Albemarle Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,744  in Albemarle Corp on September 13, 2024 and sell it today you would earn a total of  1,588  from holding Albemarle Corp or generate 18.16% return on investment over 90 days.

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

FutureFuel Corp  vs.  Albemarle Corp

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.

Albemarle Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Albemarle Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Albemarle Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FutureFuel Corp and Albemarle Corp

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

The idea behind FutureFuel Corp and Albemarle 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.