Correlation Between Linde Plc and FutureFuel Corp

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

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

Diversification Opportunities for Linde Plc and FutureFuel Corp

0.27

Correlation Coefficient

Linde Plc  FutureFuel Corp

Modest diversification

The 3 months correlation between Linde and FutureFuel is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Linde plc Ordinary and FutureFuel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FutureFuel Corp and Linde Plc 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 Linde plc Ordinary 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 Linde Plc i.e., Linde Plc and FutureFuel Corp go up and down completely randomly.

Pair Corralation between Linde Plc and FutureFuel Corp

Considering the 90-day investment horizon Linde plc Ordinary is expected to generate 0.24 times more return on investment than FutureFuel Corp. However, Linde plc Ordinary is 4.23 times less risky than FutureFuel Corp. It trades about -0.35 of its potential returns per unit of risk. FutureFuel Corp is currently generating about -0.14 per unit of risk. If you would invest  48,336  in Linde plc Ordinary on August 20, 2024 and sell it today you would lose (3,426) from holding Linde plc Ordinary or give up 7.09% of portfolio value over 90 days.

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

Linde plc Ordinary  vs.  FutureFuel Corp

Linde plc Ordinary

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Linde plc Ordinary has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Linde Plc is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Linde Plc and FutureFuel Corp

The main advantage of trading using opposite Linde Plc and FutureFuel Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Linde Plc 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 Linde plc Ordinary 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.

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.