Correlation Between AdvanSix and FutureFuel Corp

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

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

Diversification Opportunities for AdvanSix and FutureFuel Corp

0.47

Correlation Coefficient

AdvanSix  FutureFuel Corp

Very weak diversification

The 3 months correlation between AdvanSix and FutureFuel is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding AdvanSix and FutureFuel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FutureFuel Corp and AdvanSix 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 AdvanSix are associated (or correlated) with FutureFuel Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FutureFuel Corp has no effect on the direction of AdvanSix i.e., AdvanSix and FutureFuel Corp go up and down completely randomly.

Pair Corralation between AdvanSix and FutureFuel Corp

Given the investment horizon of 90 days AdvanSix is expected to generate 1.59 times more return on investment than FutureFuel Corp. However, AdvanSix is 1.59 times more volatile than FutureFuel Corp. It trades about 0.04 of its potential returns per unit of risk. FutureFuel Corp is currently generating about -0.02 per unit of risk. If you would invest  2,669  in AdvanSix on January 25, 2024 and sell it today you would earn a total of  48.00  from holding AdvanSix or generate 1.8% return on investment over 90 days.

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

AdvanSix  vs.  FutureFuel Corp

AdvanSix

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AdvanSix are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, AdvanSix may actually be approaching a critical reversion point that can send shares even higher in May 2024.

FutureFuel Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FutureFuel Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, FutureFuel Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AdvanSix and FutureFuel Corp

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

The idea behind AdvanSix and FutureFuel Corp 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.

Check out your portfolio center.

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.