Correlation Between FutureFuel Corp and Arch Resources

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

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

Diversification Opportunities for FutureFuel Corp and Arch Resources

-0.49

Correlation Coefficient

FutureFuel Corp  Arch Resources

Very good diversification

The 3 months correlation between FutureFuel and Arch is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Arch Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Resources 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 Arch Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Resources has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Arch Resources go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Arch Resources

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to generate 2.53 times less return on investment than Arch Resources. In addition to that, FutureFuel Corp is 1.16 times more volatile than Arch Resources. It trades about 0.01 of its total potential returns per unit of risk. Arch Resources is currently generating about 0.02 per unit of volatility. If you would invest  12,118  in Arch Resources on September 23, 2024 and sell it today you would earn a total of  1,655  from holding Arch Resources or generate 13.66% return on investment over 90 days.

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

FutureFuel Corp  vs.  Arch Resources

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Arch Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Arch Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FutureFuel Corp and Arch Resources

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

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