Correlation Between FutureFuel Corp and Balchem

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

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

Diversification Opportunities for FutureFuel Corp and Balchem

-0.63

Correlation Coefficient

FutureFuel Corp  Balchem

Excellent diversification

The 3 months correlation between FutureFuel and Balchem is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem 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 Balchem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balchem has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Balchem go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Balchem

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to under-perform the Balchem. In addition to that, FutureFuel Corp is 1.63 times more volatile than Balchem. It trades about -0.16 of its total potential returns per unit of risk. Balchem is currently generating about 0.01 per unit of volatility. If you would invest  16,397  in Balchem on December 30, 2024 and sell it today you would lose (18.00) from holding Balchem or give up 0.11% of portfolio value over 90 days.

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

FutureFuel Corp  vs.  Balchem

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Balchem

Risk-Adjusted Performance

Very Weak

Over the last 90 days Balchem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Balchem is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FutureFuel Corp and Balchem

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

The idea behind FutureFuel Corp and Balchem 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.