Correlation Between FutureFuel Corp and Commercial Metals

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

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

Diversification Opportunities for FutureFuel Corp and Commercial Metals

0.75

Correlation Coefficient

FutureFuel Corp  Commercial Metals

Poor diversification

The 3 months correlation between FutureFuel and Commercial is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals 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 Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of FutureFuel Corp i.e., FutureFuel Corp and Commercial Metals go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Commercial Metals

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to under-perform the Commercial Metals. But the stock apears to be less risky and, when comparing its historical volatility, FutureFuel Corp is 1.25 times less risky than Commercial Metals. The stock trades about -0.02 of its potential returns per unit of risk. The Commercial Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,703  in Commercial Metals on February 3, 2025 and sell it today you would lose (56.00) from holding Commercial Metals or give up 1.19% 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.  Commercial Metals

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 June 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Commercial Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Commercial Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FutureFuel Corp and Commercial Metals

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

The idea behind FutureFuel Corp and Commercial Metals 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.