Correlation Between FutureFuel Corp and Northern Technologies

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

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

Diversification Opportunities for FutureFuel Corp and Northern Technologies

0.72

Correlation Coefficient

FutureFuel Corp  Northern Technologies

Poor diversification

The 3 months correlation between FutureFuel and Northern is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies 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 Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Northern Technologies go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Northern Technologies

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to under-perform the Northern Technologies. In addition to that, FutureFuel Corp is 1.28 times more volatile than Northern Technologies. It trades about -0.16 of its total potential returns per unit of risk. Northern Technologies is currently generating about -0.18 per unit of volatility. If you would invest  1,280  in Northern Technologies on December 30, 2024 and sell it today you would lose (238.00) from holding Northern Technologies or give up 18.59% of portfolio value over 90 days.

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

FutureFuel Corp  vs.  Northern Technologies

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.

Northern Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with FutureFuel Corp and Northern Technologies

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

The idea behind FutureFuel Corp and Northern Technologies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.