Correlation Between FutureFuel Corp and Orion Engineered

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

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

Diversification Opportunities for FutureFuel Corp and Orion Engineered

-0.68

Correlation Coefficient

FutureFuel Corp  Orion Engineered

Excellent diversification

The 3 months correlation between FutureFuel and Orion is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Orion Engineered Carbons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orion Engineered Carbons 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 Orion Engineered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orion Engineered Carbons has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Orion Engineered go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Orion Engineered

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to generate 1.03 times less return on investment than Orion Engineered. In addition to that, FutureFuel Corp is 1.07 times more volatile than Orion Engineered Carbons. It trades about 0.01 of its total potential returns per unit of risk. Orion Engineered Carbons is currently generating about 0.01 per unit of volatility. If you would invest  1,758  in Orion Engineered Carbons on September 14, 2024 and sell it today you would earn a total of  2.00  from holding Orion Engineered Carbons or generate 0.11% 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.  Orion Engineered Carbons

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.

Orion Engineered Carbons

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orion Engineered Carbons are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Orion Engineered may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FutureFuel Corp and Orion Engineered

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

The idea behind FutureFuel Corp and Orion Engineered Carbons 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.