Correlation Between FutureFuel Corp and Oil Dri

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

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

Diversification Opportunities for FutureFuel Corp and Oil Dri

-0.77

Correlation Coefficient

FutureFuel Corp  Oil Dri

Pay attention - limited upside

The 3 months correlation between FutureFuel and Oil is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Oil Dri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Dri 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 Oil Dri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Dri has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Oil Dri go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Oil Dri

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to under-perform the Oil Dri. But the stock apears to be less risky and, when comparing its historical volatility, FutureFuel Corp is 1.0 times less risky than Oil Dri. The stock trades about -0.12 of its potential returns per unit of risk. The Oil Dri is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,355  in Oil Dri on December 28, 2024 and sell it today you would earn a total of  290.00  from holding Oil Dri or generate 6.66% return on investment over 90 days.

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

FutureFuel Corp  vs.  Oil Dri

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.

Oil Dri

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Dri are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Oil Dri may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with FutureFuel Corp and Oil Dri

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

The idea behind FutureFuel Corp and Oil Dri 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.