Correlation Between FutureFuel Corp and Albemarle

Can any of the company-specific risk be diversified away by investing in both FutureFuel Corp and Albemarle 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 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, you can compare the effects of market volatilities on FutureFuel Corp and Albemarle 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of FutureFuel Corp and Albemarle.

Diversification Opportunities for FutureFuel Corp and Albemarle

0.07

Correlation Coefficient

FutureFuel Corp  Albemarle

Significant diversification

The 3 months correlation between FutureFuel and Albemarle is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Albemarle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Albemarle go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Albemarle

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to generate 0.91 times more return on investment than Albemarle. However, FutureFuel Corp is 1.1 times less risky than Albemarle. It trades about -0.03 of its potential returns per unit of risk. Albemarle is currently generating about -0.14 per unit of risk. If you would invest  514.00  in FutureFuel Corp on November 19, 2024 and sell it today you would lose (25.00) from holding FutureFuel Corp or give up 4.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

FutureFuel Corp  vs.  Albemarle

FutureFuel Corp

Risk-Adjusted Performance

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

Risk-Adjusted Performance

Very Weak

Over the last 90 days Albemarle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with FutureFuel Corp and Albemarle

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

The idea behind FutureFuel Corp and Albemarle 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.