Correlation Between FutureFuel Corp and 5E Advanced

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

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

Diversification Opportunities for FutureFuel Corp and 5E Advanced

0.54

Correlation Coefficient

FutureFuel Corp  5E Advanced

Very weak diversification

The 3 months correlation between FutureFuel and FEAM is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and 5E Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 5E Advanced Materials 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 5E Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 5E Advanced Materials has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and 5E Advanced go up and down completely randomly.

Pair Corralation between FutureFuel Corp and 5E Advanced

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to generate 0.51 times more return on investment than 5E Advanced. However, FutureFuel Corp is 1.97 times less risky than 5E Advanced. It trades about -0.01 of its potential returns per unit of risk. 5E Advanced Materials is currently generating about -0.01 per unit of risk. If you would invest  555.00  in FutureFuel Corp on September 13, 2024 and sell it today you would lose (25.00) from holding FutureFuel Corp or give up 4.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

FutureFuel Corp  vs.  5E Advanced Materials

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.

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.

Pair Trading with FutureFuel Corp and 5E Advanced

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

The idea behind FutureFuel Corp and 5E Advanced Materials 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.